FRANKLIN TEMPLETON MANAGEMENT (INDIA) P.LTD., MUMBAI V. DY CIT -RANGE-6(3)(1), MUMBAI

ITA 2046/MUM/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 0455 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: F
• Next Hearing Date: 19-07-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 27-12-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Share purchase agreement; Scheme of amalgamation
• Section: 32; 250; 144C; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI RAHUL CHAUDHARY, JM ITA No. 2046/Mum/2020 (Assessment Year 2016–17) Frank lin T em pleton Managem ent (India ) P. Ltd. 12 th & 13 th f loor, India Bul ls Finance Center, T owe r–2, Senapati Bapat Mar g, E lphin stone (W ), Mum bai-400013 Vs. Dy. CIT–Range 6(3)(1) Room no.506, 5 th Floor, Aayakar Bhavan, M.K. road, Mumbai-400 020 (Appellant) (Respondent) PAN No.AAACT1609B Assessee by : Shri Farooq Irani, AR Revenue by : Shri Vrinda U Matkari, DR Date of hearing: 20.07.2022 Date of pronouncement: 18.10.2022 O R D E R PER PRASHANT MAHARISHI, AM: 01. This appeal is filed by assessee Franklin Templeton asset Management (India) private limited (assessee/appellant) against Appellate order passed by the Commissioner of income tax, Appeal – 12, Mumbai [ The ld. CIT (A)] dated 26/8/2020 for assessment year 16 – 17 raising following grounds of appeal: - “Based on the facts and circumstances of the case, Franklin Templeton Asset Management (India) Private Limited (hereinafter referred to as the Page | 2 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 'Appellant] respectfully craves to prefer an appeal under section 253 of the Income-tax Act, 1961 (Act) against the order dated 28 August 2020 passed by the Commissioner of Income-tax- (Appeals) 12, Mumbai (hereinafter referred to as the learned CIT(A)), under section 250 of the Act, on the following grounds: Ground No. 1: Disallowance of claim of depreciation on goodwill amounting to Rs 1,47,05,938 1. The order of the learned CIT(A) is vitiated by errors of law and fact and by a failure to appreciate the Scheme of Amalgamation and the effect thereof. 2. The learned CIT(A) erred in upholding the order of the Deputy Commissioner of Income Tax-Circle 6(3)(1), Mumbai (hereinafter referred to as the 'learned AO') in disallowingthe Appellant's claim for depreciation under section 32(1) of the Act amounting to Rs 1,47,05,938 in respect of Goodwill arisen on amalgamation of Pioneer ITI AMC Limited (PAMC) with the Appellant. While doing so, the learned CIT(A) respectfully erred as under: 2.1 In stating that no consideration has been paid on amalgamation and that no goodwill has arisen as a result of amalgamation without appreciating the fact that the premium paid by the Appellant for acquisition of PAMC and its Assets under management over and above the net book value of PAMC represents goodwill. Page | 3 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 2.2 In stating that the Appellant made an application before Hon'ble Bombay High Court in the year 2005 without appreciating the fact that the Hon'ble Bombay High Court sanctioned the scheme which is effective from appointed date (i.e., 26 July 2002). 2.3 In relying on the accounting guidance/ principles prescribed for accounting for amalgamations/ without appreciating the fact that the entitlement of a taxpayer to claim a deduction under the Act would be independent of accounting treatment followed in its books of account. 2.4 The leaned CIT(A) erred in holding that there is no question of goodwill arising in the present case as it was an amalgamation in the nature of merger. 2.5 The learned CIT(A) erred on facts and in law in alleging that there were two separate transactions, one by way of purchase of shares and the other by way of amalgamation, overlooking inter-alia that the aforesaid two events were only two different parts of one composite transaction as borne out inter-alia by the Appellant's letter to the Securities and Exchange Board of India dated 17 April 2002.2. In completely ignoring that the Amalgamation Scheme approved by the Hon'ble High Court specifies that the difference between the cost of investment of PAMC in the books of Appellant and the book value of net assets of PAMC taken over by the Appellant would be recorded as goodwill capital reserve in the books of account of the Appellant. Page | 4 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 2.7 in failing to appreciate the fact that goodwill could have been recognized in the books of account only when the entire process of amalgamation was completed, and the final Court order was received and up till then the Appellant had continued to project the acquisition of equity shares of PAMC as an investment with a note in the financial statement to this effect. 2.8 The learned CIT(A) erred in not appreciating the fact that the learned AO has erroneously stated that the Appellant has claimed depreciation on goodwill for the first time in its return of income for AY 2012-13 whereas the Appellant has been claiming depreciation on goodwill since AY 2003-04 through rectification letters, revised return and original returns as applicable, after the Supreme court's decision in the case of C.I.T. Kolkata v Smits Securities Ltd [2012] 348 ITR 302 (SC). 2.9 The learned CIT(A) erred in not appreciating the fact that the learned AO has incorrectly stated that, the Appellant (in the year of amalgamation i.e., 2002 and subsequent years) held the shares of PAMC as investment and was claiming expenditure on account of diminution in value of investment to reduce the tax liability. In fact, such provision of diminution in value of investment was never claimed as a deduction and was added back by the Appellant while computing its total income for each year in which such provision was made. Page | 5 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 2.10 In not allowing the said depreciation and completely ignoring Explanation 5 of section 32(1) of the Act as per which the deduction for depreciation should mandatorily be allowed while computing the total income of an assessee. 3. The Appellant denies each and every allegation and statement made by the learned CIT(A) in the impugned order unless the same is specifically admitted by the Appellant or is otherwise borne out by the record. 4. The order of the learned CIT(A) is vitiated inter- alia by the following amongst other factual and illegal errors: i. 'there was no amalgamation which took place between the appellant company and PAMC in the year 2002." ii. "Having regard to the facts and circumstance of the case, in view of the discussion in the preceding paragraphs, I find that no such intangible asset in the nature of Goodwill, for the purposes of Section 32 of the Act, could be said to have arisen as a result of the said Amalgamation." iii. "On this point, I am in agreement with the finding reverted by the AO that the ratio of the Supreme Court decision in the case of CIT vs Smifs Securities Ltd (supra) is not at all applicable in the present case." Page | 6 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 iv. "In the present case, I find that no such intangible asset in the nature of Goodwill, within the meaning of Section 32 of the Act, could be said to have arisen as aresult of the amalgamation of Franklin Templeton AMC Limited (formerly known as PAMC) with the appellant company, as per the sanctioned Scheme of amalgamation, for reasons elaborated in the preceding paragraphs v. AO has also reverted a factual finding that no such asset of Goodwill had arisen to the appellant company as a result of amalgamation. Thus, the facts of the present case are distinguished on these grounds. Therefore, I find that the ratio of the Supreme Court decision in the case of CIT Vs Smifs Securities Ltd (supra) is not at all applicable to the present case." vi. "In view of the facts and circumstances of the case, and having regard to the prevailing position of law applicable on such facts, I find that the disallowance of claim of depreciation on Goodwill has been correctly made by the AO, as no such Intangible asset in the nature of Goodwill, for the purposes of Section 32 of the Act, had arisen to the appellant company as a result of the amalgamation." 5. The order of the learned CIT(A) is vitiated inter- alia by i. his ignoring the orders of the Hon'ble Income- tax Appellate Tribunal in the Appellant's own case Page | 7 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 which upheld the Appellant's claim for depreciation ongoodwill ii. his failure to consider the written submissions filed before him. Ground No. 2: Non-grant of credit for taxes paid on regular assessment amounting to Rs 675,500 The learned CIT(A) erred in concluding that the Appellant did not press the ground in relation to non-granting of credit for taxes paid on regular assessment amounting to Rs 6,75,000 and thus, had erred in dismissing the said ground without adjudication. The Appellant craves leave to add, amend, alter, vary, omit, substitute or amend any or all the above grounds of appeal, at any time before or at, the time of hearing of the appeal so as to enable the Honorable Income-tax Appellate Tribunal to decide this appeal according to the law. Each of the above grounds of appeal are independent of and without prejudice to one another.” 02. Brief facts of the case shows that assessee company is engaged in asset management of mutual fund including transfer agency services and receiving of portfolio management services. It filed its return of income on 20/11/2016 declaring a total income of ₹ 525,94,14,510. Return of Income was picked up for Page | 8 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 scrutiny and necessary notices u/s 143 (2) was issued. 03. Assessee has claimed depreciation on goodwill amounting to Rs. 1,47,05,938/–. The company amalgamated with Franklin Templeton AMC Limited which got approvedits scheme with effect from 26 July 2002. The Honourable Bombay High Court and HonourableMadras High Court approved the scheme on 7 October 2005 and 7 February 2006, respectively. Consequent to the orders of the respective Honourable High Courts approving the scheme of amalgamation effective 26 July 2002, the final order of the dissolution of Franklin Templeton AMC Limited without being wound up was issued by the HonourableMadras High Court as per order dated 12 March 2008., As per the order of the Honourable High Court approving the scheme of amalgamation all assets and liabilities got transferred from Franklin Templeton AMC Limited to assessee. As mentioned in paragraph number 2.5 of the scheme of amalgamation, difference between the cost of investment of the transferee company in the transferor company‟s books allassets, properties, debts, and liabilities forming part of the undertaking were recorded on the appointed date as capital reserve/goodwill in the books of account of the transferee company. Accordingly, consideration paid by more than the value of the net assets of Franklin Templeton asset management company, the Page | 9 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 assessee company recognized Goodwill of ₹ 2,476,032,231/– arising out of amalgamation. Assessee claimed that according to the provisions of Section 32 (1) of Act, assessee is entitled to depreciation on the same. Therefore, assessee relying on the decision of the Honourable Supreme Court in case of spec securities claimed depreciation on goodwill. 04. It was emphatically stated that in assessee‟s own case for assessment year 2005 – 06, assessment year 2000 – 11 and assessment year 2011 – 12 the coordinate bench has held that depreciation on goodwill should be allowed to the assessee company. All the orders of the coordinate bench in earlier years were also pressed into support of the claim. It Was also stated that for assessment year 2006 – 07 the learned assessing officer has allowed the claim of the assessee. Therefore, it was submitted that the claim is allowable to the assessee. 05. The learned assessing officer questioned the same during assessment holding that from the scheme of amalgamation of the company, no such asset of Goodwill has arisen in because of amalgamation and the transaction does not fall within the definition of amalgamation u/s 2 (1B) of the income tax. He also questioned the assessee that as per the fifth proviso of Section 32 of the income tax act the deduction of depreciation should not exceed in any previous year Page | 10 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 deduction calculated at the prescribed rate as if the amalgamation had not taken place. He noted that from the records of this case, the deduction of depreciation of goodwill has never been claimed by the amalgamating companies before the amalgamation. Therefore, why the claim of the depreciation on goodwill amounting to ₹ 32,169,400/– should not be disallowed. 06. The assessee reiterated the facts that (1) the issue is covered by the decision of the Honourable Supreme Court, (2) the issue has already been decided in favour of the assessee by the decision of the coordinate benches in earlier years, (3) in assessment proceedings in earlier year also the learned AO has accepted the claim of the assessee. Therefore, the claim should be allowed. 07. Learned AO considered issue of disallowance of depreciation on goodwill is arising out of the amalgamation dealt with the issue as Under: - “4 Disallowance of depreciation on intangible assets 4.1 from perusal of working of depreciation as per income tax act, 1961, it is seen that the assessee company has claimed depreciation on goodwill amounting to Rs 1,47,05,938/–. However it is clear from the scheme of amalgamation of the company Franklin Templeton AMC (Chennai) with the assessee company, that no such assets Page | 11 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 of Goodwill has arisen in as a result of the amalgamation and also the transaction between the company Franklin Templeton AMC (Chennai) and the assessee company, does not fall Under the definition of amalgamation u/s 2 (1B) of the income tax act as the amount which is been paid as consideration, is to the shareholders, for buying of shares, rather than to the company for buying of assets. Also, as per the fifth proviso to Section 32 of the income tax act, the deduction of depreciation should not exceed in any previous year the deduction calculated at the prescribed rates as if the amalgamation had not taken place. However, from the records of the case, it is clear that the deduction of depreciation on goodwill has never been claimed by the amalgamating companies before the amalgamation. The AR of the assessee company was asked to justify the claim and also show cause vide letter dated 15/11/2018 as to why the same should not be disallowed. In response thereto the AR of the assessee has submitted its detail as per letter dated 16/11/2018. The same are perused carefully. The assessee has claimed the same depreciation on the intangible asset goodwill. The main argument of the assessee is representative is that the goodwill is the excess of consideration paid over the value of net assets of Franklin Templeton AMC at the time of its amalgamation with the assessee company in financial year 2002. The AR of the assessee also submitted that the goodwill comes Under definition of intangible assets by virtue of provisions of Section 32 (1) of the act. Page | 12 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 The assessee also relied on the judgement of Apex Court in the case of CIT Kolkatta versus Smifs securities Ltd (348 ITR 302) (2012) (SC). 4.2 it is relevant to mention here that this asset goodwill, relates to an amalgamation entered into by the assessee company in the financial year 2002. From then on till date, the first time the assessee has claimed depreciation on this assessee in its return of income is in assessment year 2012 – 13 only. This is because it has shown the same as investment at the time of amalgamation and in subsequent years and was claiming expenditure on account of diminution of value of investment to reduce the tax liability. 4.3 however, passed the Honourable Supreme Court’s decision in case of CIT Kolkata versus Smith securities Ltd (supra), the assessee changed its claim goodwill and sought for depreciation to be given retrospectively. However, in the judgement mentioned supra, the Honourable Apex court has only clarified whether or not goodwill is an asset on which depreciation is allowable. He has not specified anywhere as to how the goodwill has to be calculated for Under what circumstances it would be considered as having arisen. In the case of the assessee, this transaction date back to the year 2002. When no such claim of Goodwill having arisen in as a result of the amalgamation was made by the assessee and, therefore, no computation was made to that effect in the books, verified in the assessment year. Further, on analysis of the nature of transactions of the scheme of Page | 13 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 amalgamation between assessee company and the company Franklin Templeton ANC (Chennai), it has been seen that the shares of the amalgamated company were purchased at a premium by the assessee company and on amalgamation the value paid in excess of the fair market value assets was termed as goodwill in the hands of the amalgamated company. Thus, there is no purchase of any kind of asset by the assessee company on amalgamation with the company Franklin Templeton AMC (Chennai), therefore, there arises no question of the generation of goodwill is an intangible asset. Also, it is also pertinent to mention here that in the own case of the assessee for the assessment year 2005 – 06 and 2010 – 11, the revenue has not accepted the decision of the Honourable ITAT, Mumbai and has filed appeal before the Honourable Bombay High Court on the same issue. 4.4 therefore in the light of above facts and circumstances, the assessee’s claim of depreciation on goodwill amounting to Rs 147,05,938/– is rejected as being a mere opportunistic afterthought and not justified on the basis of the facts of the case.” 08. Accordingly, assessment order u/s 143 (3) of the income tax act 1961 was passed on 20/12/2018 determining total income of the assessee at ₹ 5,274,120,450/– thereby making disallowance of depreciation of Rs 14705938/- on Goodwill u/s 32 of the act. Page | 14 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 09. Aggrieved with the above order the assessee preferred an appeal before the learned CIT – A who dismissed the claim of the assessee holding as Under: - ““6 I have carefully considered the relevant and material facts on record, in respect of this ground of appeal, as brought out in the assessment order and submissions made during appeal proceedings. 6.1 Brief facts of the case are that the appellant company on 17.04.2002 submitted a proposal seeking approval of Securities and Exchange Board of India (SEBI) regarding the proposed acquisition of Pioneer ITI AMC Ltd (PAMC). On perusal thereof, it is noted that the appellant company had proposed to execute a share purchase agreement to acquire 100% ownership of PAMC. It was also proposed that Templeton Trust Services Pvt. Ltd. (TTSL) would acquire 100% ownership of Pioneer ITI Mutual Fund Pvt. Ltd (PMF). The consideration for purchase of shares, for the proposed acquisition of PAMC, was to be paid to the shareholders of PAMC. This has been clearly mentioned in the proposal submitted to SEBI, as under: - "Subject to the fulfillment of the conditions precedent set out in the share purchase agreement, TAMC would purchase and own 100% shares of PAMC and TTSL would own the shares of PMF and would pay the consideration agreed in the share purchase agreement to the shareholder." Page | 15 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 6.2 Subsequently, the appellant company on 23.07.2002 acquired 100% equity shareholding of PAMC for a total consideration of Rs 267.63 Crore. Thus, it is evident that the transaction entered in Financial Year 2002 03 was that the appellant company acquired 100% shareholding of PAMC by way of outright purchase of shares from the existing shareholders. There was no amalgamation which took place between the appellant company and PAMC in the year 2002. Rather, PAMC became 100% owned subsidiary of the appellant company because of purchase of entire shareholding. 6.3 Thereafter, in the year 2005, the appellant company made an application before the Bombay High Court and Madras High Court seeking sanction of one scheme of amalgamation of Franklin Templeton AMC Limited (formerly known as PAMC) with the Franklin Templeton Asset Management (India) Private Limited (i.e., the appellant company). The Scheme of amalgamation was sanctioned by the Bombay High Court on 07.10.2005 and by the Madras High Court on 07.02.2006. The appointed date mentioned in the Scheme of amalgamation was 26.07.2002. Later, Madras High Court on 12.03.2008 sanctioned dissolution of Franklin Templeton AMC Limited without winding up. 6.4 To sum up, in the present case, two distinct and disjoint events have taken place at different periods, - Page | 16 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 1. The appellant company acquired PAMC by purchase of 100% equity shares from the existing shareholder, in the year 2002, in accordance with a share purchase agreement. The total consideration of Rs 267.63 Crore for purchase of shares was paid by the appellant company to the shareholders of PAMC. As a result, PAMC became 100% subsidiary of the appellant company. 1. The Franklin Templeton AMC Limited (formerly known as PAMC) which was 100% subsidiary of the appellant company, was amalgamated with the appellant company. The Scheme of amalgamation was sanctioned by jurisdictional High Courts in the year 2005 and 2006. This was an amalgamation of a 100% owned subsidiary with its parent company (the appellant). 6.5 On a careful perusal of the Scheme of amalgamation, it is noted that all the assets and liabilities of the subsidiary company stood transferred to the parent company on the appointed date, because of amalgamation. However, in the said Scheme of amalgamation, there is no mention of any consideration being paid by the parent company (i.e., the appellant company) to the subsidiary company in relation to the amalgamation. In the instant case, since no consideration has been paid for transfer of assets and liabilities of the subsidiary company to the parent company, at the time of amalgamation, there Page | 17 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 is no question of any intangible asset in the nature of Goodwill (being excess of consideration paid over net assets of the transferor company) having arisen to the appellant company, as a result of amalgamation. 6.6 The Accounting Standard AS-14, notified under the Companies (Accounting Standard) Rules, deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. The AS-14 describes two types of amalgamation, viz. an amalgamation in merger, and an amalgamation in the nature of purchase. 6.7 As per AS-14, an amalgamation is considered to be an amalgamation in the nature of merger when all the following conditions are satisfied, - 1. All the assets and liabilities of the transferor company become, after amalgamation, the assets, and liabilities of the transferee company. 2. Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. 3. The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become Page | 18 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. 4. The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. 5. No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. The Accounting Standard AS-14 further prescribes that an amalgamation in the nature of merger should be accounted for under the pooling of interests’ method. The pooling of interest method provides that in preparing the transferee company's financial statements, the assets, liabilities, and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. In pooling of interest method, the difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share Page | 19 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 capital of the transferor company is to be adjusted in reserves. 6.8 As per AS-14, an amalgamation is regarded as an amalgamation in the nature of purchase when any one or more of the above conditions is not satisfied. An amalgamation in the nature of purchase should be accounted for under the purchase method. The purchase method provides that in preparing the transferee company's financial statements, the assets and liabilities of the transferor company should be incorporated at their existing carrying amounts or, alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. In purchase method, any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognized in the transferee company's financial statements as goodwill arising on amalgamation. 6.9 In the present case, the Franklin Templeton AMC Limited (formerly known as PAMC), which was 100% subsidiary of the appellant company. has been amalgamated with the appellant company, as per the Scheme of amalgamation. which was sanctioned by jurisdictional High Courts. In other words, this was an amalgamation of a 100% owned subsidiary with its parent company (the appellant company). All the assets and liabilities of the transferor company have become the assets and liabilities of the transferee Page | 20 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 company after amalgamation. There is 100% continuity of shareholding between the amalgamating and amalgamated companies. No consideration in any form has been paid by the transferee company to the transferor company for transfer of the undertaking in relation to amalgamation. On these facts, it is evident that this is a case of amalgamation in the nature of merger, and not amalgamation in the nature of purchase. Therefore, the amalgamation in the present case should be accounted for under the pooling of interest method, as prescribed in AS-14. 6.10 At this juncture, it is pertinent to recall that the Accounting standard AS-14 prescribes, only in the case of amalgamation in the nature of purchase, that any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognized in the transferee company's financial statements as goodwill arising on amalgamation. The amalgamation, in the present case, being an amalgamation in the nature of merger, should be accounted for under the pooling of interests’ method as per AS-14, which does not provide for excess of the consideration being recognized as goodwill in the transferee company's financials. 6.11 The appellant has contended that Para 2.5 of the Scheme of amalgamation provides that difference between the cost of investment of the transferee company in the transferor company and the book value of all assets and properties and debts and Page | 21 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 liabilities of the transferor company would be recorded as capital reserve/goodwill in the books of accounts of the transferee company. This stipulation would, however, determine only the manner of making entry in the books of accounts of the appellant company. It is trite law that entry in the books of accounts is not determinative of real character of transactions under the income tax laws. 6.12 To sum up, the moot point which requires adjudication in the instant case is whether or not an intangible asset in the nature of Goodwill, within the meaning of Section 32 of the Act, could be said to have arisen as a result of the amalgamation of Franklin Templeton AMC Limited (formerly known as PAMC) with the appellant company, in accordance with the sanctioned Scheme of amalgamation. Having regard to the facts and circumstances of the case, in view of the discussion in the preceding paragraphs, I find that no such intangible asset in the nature of Goodwill, for the purposes of Section 32 of the Act, could be said to have arisen as a result of the said amalgamation. 6.13 In this regard, it is important to draw the distinction that the issue in the present case is not whether depreciation could be allowed on intangible asset in the nature of Goodwill, as per the provisions of section 32 of the Act. On this point, I am in agreement with the finding reverted by the AO that the ratio of the Supreme Court decision in the case of CIT VS Smifs Securities Ltd (supra) is not at all Page | 22 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 applicable in the present case. In the case of CIT VS Smifs Securities Ltd, the question which arose for determination of Hon'ble Supreme Court was whether Goodwill is an asset within the meaning of Section 32 of the Act and whether depreciation on 'Goodwill' is allowable under the said Section. This question was, however, based on clear finding of fact that Goodwill had indeed arisen in the books of the accounts of the transferee company, as a result of amalgamation. It was explained before the Hon'ble Supreme Court that excess consideration paid by the assessee over the value of net assets of the amalgamating company should be considered as goodwill arising on amalgamation. On these facts, Hon'ble Supreme Court took a view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. However, Hon'ble Supreme Court, in the succeeding paragraphs of the same judgment, has also made it abundantly clear that the said decision was rendered on the basis of clear findings of facts, reverted by the lower authorities, that the Goodwill had indeed arisen to the assessee company as a result of amalgamation, and further that these findings of fact were not controverted by Revenue before the High Court. The relevant paragraphs of the judgment are reproduced as under, - "6. One more aspect needs to be highlighted. In the present case, the Assessing Officer, as a matter of fact, came to the conclusion that no Page | 23 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 amount was actually paid on account of goodwill. This is a factual finding. The Commissioner of Income Tax (Appeals) [CIT(A), for short] has come to the conclusion that the authorized representatives had filed copies of the Orders of the High Court ordering amalgamation of the above two Companies; that the assets and liabilities of M/s. YSN Shares and Securities Private Limited were transferred to the assessee for a consideration; that the difference between the cost of an asset and the amount paid constituted goodwill and that the assessee-Company in the process of amalgamation had acquired a capital right in the form of goodwill because of which the market worth of the assessee-Company stood increased. This finding has also been upheld by Income Tax Appellate Tribunal [ITAT, for short]. We see no reason to interfere with the factual finding. 7. One more aspect which needs to be mentioned is that. against the decision of ITAT, the Revenue had preferred an appeal to the High Court in which it had raised only the question as to whether goodwill is an asset under Section 32 of the Act. In the circumstances, before the High Court, the Revenue did not file an appeal on the finding of fact (emphasis supplied) referred to hereinabove." Page | 24 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 6.14 In other words, the ratio laid down by the Supreme Court in the case of CIT VS Smifs Securities Ltd (supra) would be a binding precedent only in those cases where there is a clear finding of fact that an intangible asset in the nature of Goodwill had indeed arisen to the assessee company as a result of amalgamation. In the present case, I find that no such intangible asset in the nature of Goodwill, within the meaning of Section 32 of the Act, could be said to have arisen as a result of the amalgamation of Franklin Templeton AMC Limited (formerly known as PAMC) with the appellant company, as per the sanctioned Scheme of amalgamation, for reasons elaborated in the preceding paragraphs. AO has also reverted a factual finding that no such asset of Goodwill had arisen to the appellant company as a result of amalgamation. Thus, the facts of the present case are distinguished on these grounds. Therefore, I find that the ratio of the Supreme Court decision in the case of CIT VS Smifs Securities Ltd (supra) is not at all applicable to the present case. 7. In view of the facts and circumstances of the case, and having regard to the prevailing position of law applicable on such facts, I find that the disallowance of claim of depreciation on Goodwill has been correctly made by the AO, as no such intangible asset in the nature of Goodwill, for the purposes of Section 32 of the Act, had arisen to the appellant company as a result of the amalgamation. Accordingly, the disallowance of Rs. 1.47.05,938/- made by the AO on Page | 25 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 this account is confirmed. This ground of appeal is dismissed.” 010. Therefore, assessee is aggrieved with the order of the learned CIT – A has preferred this appeal before us. The learned authorized representative submitted a factual paper book containing 161 pages. He submitted that for assessment year 2005 – 06 coordinate bench in assessee‟s own case in ITA number 4068/M/2011 dated 3/8/2016 has admitted an additional ground of appeal wherein the assessee has claimed depreciation allowance u/s 32 (1) (ii) of the act on the amount of Goodwill acquired by the assessee on acquisition and merger of another company with the assessee company. He referred to paragraph number 8 onwards to show the facts of the case and further paragraph number 8.4 where the coordinate bench relying on the decision of the Honourable Supreme Court in case of CIT versus Smifs securities Ltd 348 ITR 302 (Supreme Court) and the decision of Honourable Delhi High Court in case of Triune energy services private limited versus deputy Commissioner of income tax 65 taxmann.com 208 has allowed the claim of the assessee of depreciation on goodwill. He further referred to the order of the coordinate bench in assessee‟s own case for assessment year 2010 – 11 in ITA number 90/M/2016 dated 13/12/2017 where in the appeal filed by the revenue against the allowance of the claim of depreciation on goodwill by the learned CIT Page | 26 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 – A, coordinate bench dismissed the appeal of the revenue in confirming the order of the learned CIT – A. He further referred to ITA number 1597/M/2017 for assessment year 2011 – 12 dated 5/9/2018 where the identical claim was allowed. 011. He further submitted the appeal filed by the revenue for assessment year 2010 – 11 before the Honourable Bombay High Court on 26/7/2018 in case of the assessee arising out of ITA number 2657 of 2018 which is pending for disposal. He referred to the challenge made by the principal Commissioner of income tax – 6, Mumbai in the above case. He submitted that only challenge made by the learned principal Commissioner of income tax is with respect to the applicability of fifth proviso to Section 32 (1) of the income tax act. He referred to” points to be urged” placed at page number 9 of the above appeal. Therefore, he submitted that even the revenue has not challenged that assessee is not entitled to depreciation on the goodwill arising out of the above amalgamation and it challenges only applicability of fifth proviso of Section 32 (1) of the income tax act. Therefore, the principal Commissioner of income tax has also accepted that assessee is entitled to depreciation on goodwill arising out of the amalgamation. He further submitted that now maybe revenue cannot oppose this appeal. Page | 27 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 012. The learned departmental representative vehemently supported the order of the learned lower authorities. It was submitted that mere accounting entry of Goodwill arising out of the accounting treatments on account of amalgamation does not give any rise to any intangible asset. He further submitted that Honourable Supreme Court did not hold that on goodwill arising out of amalgamation is an intangible asset eligible for depreciation. He therefore vehemently opposed the appeal of the assessee extensively reading the order of the learned CIT – A and learned AO. 013. We have carefully considered the rival contentions and perused the orders of the lower authorities. We have also carefully gone through the orders of the coordinate bench in assessee‟s own case in earlier years on the issue of allowability of depreciation on goodwill arising out of the book entries on amalgamation. Coordinate benches for past several years has allowed the claim of the assessee with same directions and set-aside back to the file of the learned AO. However, for assessment year 2000 – 11 it was allowed. Now the issue is pending before the Honourable Bombay High Court wherein the appeal filed by the revenue for assessment year 2010 – 11 against the order of the coordinate bench in ITA number 90/M/2016 dated 13/12/2017 wherein coordinate bench following the decision of the coordinate bench in assessee‟s own case for Page | 28 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 assessment year 2005 – 06 and relying on the order of the Honourable Supreme Court in case of CIT versus Smifs securities Ltd (2012) 348 ITR 302 allowed the claim of the depreciation on goodwill. 014. Therefore, judicial discipline demands that we must follow the orders of the coordinate bench in assessee‟s own case for earlier years on the same issue. 015. It is also the fact that when the learned principal Commissioner of income tax challenged the order of the coordinate bench before the Honourable Bombay High Court for assessment year 2000 – 11, the only ground raisedis with respect to the applicability of fifth proviso of Section 32 (1) of the income tax act. We do not find any challenge to the allowability of depreciation itself on such accounting of Goodwill. 016. However, the facts stated in the appeal of the revenue for assessment year 2010 – 11 before the Honourable Bombay High Court shows the litigation in the earlier years on the same issue as Under: - “Assessment year 2006 – 07, 2007 – 08, 2008 – 09, 2009 – 10: -the case was selected for scrutiny for the above years and the assessment orders have been passed. The case is not pending before any appellate authority as the issue raised in assessment orders have been settled before the Honourable ITAT. The ITAT orders for the above- Page | 29 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 mentioned years came before the Honourable Supreme Court judgement was passed in the case of CIT versus Smifs securities Ltd 348 ITR 302 (SC), therefore, regarding the said issue of claiming depreciation on goodwill, the assessee has not filed any appeal before any appellate authority. However, the assessee has filed a rectification application regarding this issue before the AO. Assessment year 2010 – 11: assessment order was passed u/s 143 (3) read with Section 144C (3) of the income tax act, 1961 on 11/3/2013. The ITAT vide order dated 6/10/2015 was also passed an order in favour of the assessee. Which is in challenge before the Honourable High Court. Assessment year 2011 – 12: the case was selected for scrutiny and assessment orders has been passed. The assessee claimed depreciation on the amount of Goodwill for the first time in the revised return for assessment year 2011 – 12, however the claim was not allowed by the AO for the said year the issue was pending before the ITA which was later decided on 21/6/2019 in ITA number 1597/M/2017 along with miscellaneous application number 219/M/2019. Assessment year 2012 – 13, 2013 – 14 and 2014 – 15: the assessee claimed depreciation on the amount of goodwill in the return for the above- Page | 30 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 mentioned years. The claim was not allowed during the assessment proceedings. The appeal for the above years is pending before the Commissioner of income tax (appeals) for grant of depreciation on goodwill arising on amalgamation. Assessment year 2015 – 16: the assessee claimed depreciation on the amount of goodwill in the return for the above-mentioned years the assessment proceedings were pending at the time of filing of the appeal before the Honourable Bombay High Court.” 017. We have also carefully perused the orders of the coordinate benches. For assessment year 2005 – 2006 the issue was decided in ITA number 4068/2011 on 3/8/2016 wherein assessee raised an additional ground of appeal for allowability of depreciation on goodwill. Vide paragraph number 8 this ground was considered. The coordinate bench in paragraph number 8.4 categorically held that „it is further noted that the judgement of Honourable Supreme Court in the case of CIT versus Smifs securities Ltd 348 ITR 302 (SC) clearly laid down the principle that the depreciation is admissible on amount of goodwill.” It further held in the same paragraph „our viewpoints support from the judgement of Honourable Delhi High Court in the case ofTriune energy services private limited versus DCIT 65 taxman.com 285 (Delhi) wherein identical issue was involved, in similar facts and circumstances.” It further considered the decision of the coordinate bench in Page | 31 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 case of Grind well Norton limited in ITA number 528/2012 dated 27 July 2016 (Mumbai). Then in paragraph number 8.5 the coordinate bench set-aside the whole issue back to the file of the learned assessing officer with a direction to the AO that “he shall verify the factual assertions made by the assessee that depreciation has been allowed on this amount of goodwill in subsequent years as has been claimed before the bench. It was further held that if it is found to be correct, then the depreciation would be a should be granted from the beginning.” This order of the coordinate bench was also subject to a miscellaneous application number 31/2017 dated 1/9/2017 wherein it was partly modified by removing certain lines of para number 8.6” the AO shall verify the factual assertions made by the assessee that the appreciation has been allowed on this amount of goodwill in subsequent years, as has been claimed before us. If it is found to be correct, then depreciation should be granted from the beginning.” Therefore, now the facts suggests that the issue remains to be decided by the learned assessing officer. Similarly for assessment year 2000 – 11 in ITA number 90/M/2016 dated 13/12/2017 directed the learned assessing officer to allow depreciation on goodwill in the impugned assessment year after the quantification of depreciation on goodwill is made in assessment year 2005 – 06 as per the direction of the coordinate bench for that year. For assessment year 2011 – 12 in ITA number 1597/M/2017 dated 5/9/2018 the coordinate bench held that the matter and outstanding remitted back to the file of the learned Page | 32 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 AO and decide the additional claim is raised therein as per law. This order of the coordinate bench also resulted into a miscellaneous application number 219/M/2019 for assessment year 2011 – 12 wherein the matter was restored back to the file of the learned assessing officer to verify the factual metrics and grant consequential depreciation to the assessee. The assessee is directed to substantiate his stand and provide requisite information/details. 018. Therefore, it is apparent that the issue has been sent back to the file of the learned assessing officer in earlier years. The learned departmental representative as well as the learned authorized representative did not press on any other direction which could have prevented us in following the decision of the coordinate bench in earlier years in assessee‟s own case on the same issue. Therefore, in all fairness we also send this matter back to the file of the learned assessing officer as directed by the coordinate bench in earlier years. 019. Accordingly ground number 1 along with all its sub grounds are allowed for statistical purposes and sent back to the file of the learned AO for fresh adjudication. 020. Ground number 2 is with respect to not granting of credit for taxes paid on regular assessment amounting to ₹ 675,500/–. We sent back this issue back to the file of the learned assessing officer to grant credit to the assessee after proper verification as the learned CIT – A did not Page | 33 ITA no. 2046/Mum/2020 Franklin Templeton Management (India) pvt. Ltd.; A.Y. 16–17 decide the same. Accordingly ground number 2 is allowed with above direction. 021. Accordingly appeal of the assessee is allowed for statistical purposes. Oder pronounced in the open court on 18.10.2022. Sd/- Sd/- (RAHUL CHAUDHARY) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 18.10.2022 Sudip Sarkar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai