The DCIT(OSD) Circle-8, Ahmedabad V. M/s. Sahitya Mudranalaya Pvt.Ltd., Ahmedabad

ITA 2062/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6386 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 08-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G S SOURYAVANSHI
• Assessee Lawyers: MUKESH M PATEL
• Keywords: Depreciation
• Section: 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND A. K. GARODIA , AM) ITA NO.2062/AHD/2009 A. Y.: 2006-07 THE D. C. I. T (OSD). CIRCLE-8, 4 TH FLOOR, AJANTA COMMERCIAL CENTRE, A WING, ASHRAM ROAD, AHMEDABAD VS SAHITYA MUDRANALAYA PVT. LTD., CITY MILL COMPOUND, KANKARIA, AHMEDABAD PA NO. AACCS 9591 B (APPELLANT) (RESPONDENT) APPELLANT BY SHRI G. S. SOURYAVANSHI, SR. DR RESPONDENT BY SHRI MUKESH M. PATEL, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI V, AHMEDABAD DATED 13-04-2009 FOR ASSESSMENT YEAR 2006-07, CHALL ENGING THE ORDER OF THE LEARNED CIT(A) IN ALLOWING RS.6,25,000 /- ON ACCOUNT OF DEPRECIATION ON GOODWILL. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE AO D ISALLOWED DEPRECIATION ON GOODWILL CONSIDERING THE SAME AS NO T AN INTANGIBLE ASSET. THE ASSESSEE EXPLAINED THAT IT WAS ENGAGED I N THE BUSINESS OF PRINTING AND RELATED WORK AND DURING THE YEAR, IT A CQUIRED BUSINESS RIGHT AND RUNNING BUSINESS OF SAHITYA MUDRANALAYA, A PROPRIETARY CONCERN OF BHAGWATI TRUST AND FOR THE VALUE OF THE BUSINESS RIGHTS AND GOODWILL IT HAS TO PAY RS.25,00,000/- WHICH WAS BASICALLY FOR BUSINESS RIGHTS ETC. WHICH WAS ENJOYED BY THE ABOVE FIRM FOR MANY ITA NO.2062/AHD/2009 THE DCIT (OSD), CIR-8, AHMEDABAD VS SAHITYA MUDRANA LAYA PVT. LTD. 2 YEARS. IT WAS SUBMITTED THAT THOUGH IN THE BOOK ACC OUNTING IT HAS BEEN NAMED AS GOODWILL BUT IT REPRESENTED BUSINESS RIGHTS WHICH ARE WELL COVERED IN THE TERM OF INTANGIBLE ASSET. THE A O DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND RELIED UPON THE ORDER OF THE ITAT AHMEDABAD BENCH IN THE CASE OF BHARATBHAI J. VYAS 9 7 ITD 248. THE AO DISALLOWED THE CLAIM AND ALSO NOTED THAT IN SECTION 32 (1) (II) OF THE IT ACT THE WORD GOODWILL IS NOT MENTIONED, T HEREFORE, DEPRECIATION WAS DISALLOWED. 3. THE ASSESSEE REITERATED THE SUBMISSIONS BEFORE T HE LEARNED CIT(A) AND IT WAS CONTENDED THAT THOUGH THE TERM US ED IN THE BOOKS STOOD AS GOODWILL, IT EFFECTIVELY REPRESENTED BUSIN ESS RIGHTS OF THE RUNNING BUSINESS OF THE PROPRIETARY CONCERN OF SAHI TYA MUDRANALAYA WHICH WAS ACQUIRED BY THE ASSESSEE AND HENCE, IT FE LL WITHIN THE SCOPE OF DEFINITION OF INTANGIBLE ASSET AS COVERED U/S 32 OF THE IT ACT. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER SUBMIT TED THAT THE RELIANCE PLACED BY THE AO ON THE DECISION OF ITAT, AHMEDABAD BENCH IN THE CASE OF BHARATBHAI J. VYAS 97 ITD 248 IS NOT IN ORDER, AS IN THAT CASE, THE PAYMENT WAS MADE TO A RETIRING PARTNER TOWARDS GOODWILL AND THE FIRM MADE A CLAIM FOR DEPRECIATION ON THE AMOUNT OF GOODWILL PAID TO THE PARTNERS, WHEREAS IN THE ASSES SEES CASE AN AMOUNT OF RS.25,00,000/- HAS BEEN PAID FOR THE PURC HASE CONSIDERATION OF BUSINESS AND COMMERCIAL RIGHTS FOR ACQUIRING THE RUNNING BUSINESS OF SAHITYA MUDRANALAYA WHICH WAS I N EXISTENCE FOR THE PAST SEVERAL YEARS AND THE ASSESSEE HAD ACQUIRE D RUNNING BUSINESS OF THE SAID FIRM WHICH WAS SUCCESSFULLY BE ING CONDUCTED FOR SEVERAL YEARS. IN SUPPORT OF HIS CONTENTION THE LEA RNED COUNSEL FOR THE ITA NO.2062/AHD/2009 THE DCIT (OSD), CIR-8, AHMEDABAD VS SAHITYA MUDRANA LAYA PVT. LTD. 3 ASSESSEE RELIED UPON THE DECISION OF ITAT MUMBAI BE NCH IN THE CASE OF SKYLINE CATERERS PVT. LTD. VS ITO, 118 TTJ 344 ( MUMBAI), WHEREBY THE TRIBUNAL HELD THAT ACQUISITION OF BUSINESS WITH ITS BUSINESS AND COMMERCIAL RIGHTS CONSTITUTED AN INTANGIBLE ASSET E NTITLED TO DEPRECIATION U/S 32 OF THE IT ACT AND WHILE DECIDIN G THE ISSUE, THE TRIBUNAL HAD ELABORATELY DISCUSSED THE CASE OF BHAR ATBHAI J. VYAS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER FURNIS HED A COPY OF AUDITED PROFIT & LOSS ACCOUNT OF THE COMPANY FOR TH E YEAR ENDED 31-03-2004 TO 31-03-2006 AND SUBMITTED THAT AFTER T AKING OVER THE FIRM OF M/S. SAHITYA MUDRANALAYA, THE TURNOVER OF T HE ASSESSEE HAS INCREASED BY 20% FROM YEAR TO YEAR AND HENCE, TAKIN G OVER OF BUSINESS RIGHTS HAS BEEN MUCH BENEFICIAL TO THE ASS ESSEE COMPANY EVEN AFTER PAYING RS.25,00,000/- TOWARDS BUSINESS A ND COMMERCIAL RIGHTS AND GOODWILL. 4. THE LEARNED CIT(A) CONSIDERING THE FACTS OF THE CASE AND SUBMISSION OF THE ASSESSEE, ALLOWED THE CLAIM OF T HE ASSESSEE. HIS FINDINGS IN PARA 2.3 ARE REPRODUCED AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AND THE SUBMISSIONS AS ADVANCED BY THE A. R. OF THE APPELLANT. FROM THE DETAILS FURNISHED, IT IS SEEN T HAT THE APPELLANT HAD MADE PAYMENT OF RS.25 LAKHS FOR GOODW ILL AND ALL OTHER BUSINESS RIGHTS OF A FIRM, M/S. SAHIT YA MUDRANALAYA, WHICH WAS ALSO ENGAGED IN THE BUSINESS OF PRINTING FOR SEVERAL YEARS AND ULTIMATELY THE TAKIN G OVER OF THE SAID FIRM AND THE BUSINESS RIGHTS OF THE LATTER , HAS BENEFITED THE APPELLANT COMPANY. IT IS ALSO SEEN TH AT DUE TO AN INADVERTENT MISTAKE, THE CLAIM OF DEPRECIATIO N WAS NOT MADE IN LAST YEAR AND IT WAS NOT A CASE OF DOUB TING THE GENUINENESS OF THE CLAIM, BUT IT WAS REJECTED S IMPLY ITA NO.2062/AHD/2009 THE DCIT (OSD), CIR-8, AHMEDABAD VS SAHITYA MUDRANA LAYA PVT. LTD. 4 ON THE GROUND THAT THE CLAIM WAS NOT MADE BY REVISI NG THE RETURN OF INCOME. FURTHER, AS CONTENDED BY THE A. R . THE FACTS OF THE CASE OF BHARATBHAI VYAS ARE DIFFERENT AS IN THAT CASE COMPENSATION HAS BEEN PAID TO A RETIRING PARTNER AS A GOODWILL, AND THERE WAS NO ACQUISITION OF ANY RIGHTS BUT IN THE CASE OF THE APPELLANT, PAYMENT HA S BEEN MADE FOR ACQUIRING BUSINESS RIGHTS AND IT HAS RESUL TED IN INCREASE OF TURNOVER OF THE APPELLANT. SINCE THE PA YMENT HAS BEEN MADE BY THE APPELLANT FOR ACQUIRING THE BUSINESS RIGHTS OF A FIRM, THE FACTS OF THE CASE AR E SIMILAR TO THAT OF SKYLINE CATERERS PVT. LTD. VS ITO, 118 T TJ 344 AND FOLLOWING THAT DECISION, I AM OF THE VIEW THAT DEPRECIATION IS ALLOWABLE ON THE SAID PAYMENT AS BUSINESS RIGHTS HAVE BEEN ACQUIRED WHICH ARE IN THE NATURE OF INTANGIBLE ASSET. I, THEREFORE, DIRECT TH E A. O. TO DELETE THE DISALLOWANCE MADE ON THIS COUNT. 5. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND R ELIED UPON THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CA SE OF B. RAVEENDRA PILLAI VS CIT 194 TAXMAN 477 (KER) AND SU BMITTED THAT SINCE THE DECISION OF THE HONBLE HIGH COURT IS DIR ECTLY APPLICABLE TO THE MATTER IN ISSUE, THEREFORE, DEPARTMENTAL APPEAL HAS NO MERIT AND THE SAME MAY BE DISMISSED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GON E THROUGH THE ABOVE DECISION AND WE FIND THAT THE ISSUE IS FI NALLY DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE KERALA HIGH C OURT. THE HONBLE KERALA HIGH COURT IN THE CASE OF R. RAVEEND RA PILLAI VS CIT 332 ITR 531 (SUPRA) HELD AS UNDER: ITA NO.2062/AHD/2009 THE DCIT (OSD), CIR-8, AHMEDABAD VS SAHITYA MUDRANA LAYA PVT. LTD. 5 HELD, ALLOWING THE APPEAL, THAT IN FACT, WITHOUT RESORTING TO THE RESIDUARY ENTRY THE ASSESSEE WAS ENTITLED TO CLAIM DEPRECIATION ON THE SAME, TRADE M ARK AND LOGO UNDER THE SPECIFIC HEAD PROVIDED UNDER SECTION 32 (1) (II) WHICH COVERED TRADE MARK AND FRANCHISE. ADMITTEDLY THE HOSPITAL WAS RUN IN THE SAME BUILDING, IN THE SAME TOWN, IN THE SAME NAME FOR SEVERAL YEARS PRIOR TO PURCHASE BY THE ASSESSEE . BY TRANSFERRING THE RIGHTS TO USE THE NAME OF THE HOSPITAL ITSELF, THE PREVIOUS OWNER HAD TRANSFERRED THE GOODWILL TO THE ASSESSEE AND THE BENEFIT DERIVED BY THE ASSESSEE WAS RETENTION OF CONTINUED TRUST OF TH E PATIENTS WHO WERE PATIENTS OF THE PREVIOUS OWNERS. WHEN THE GOODWILL PAID WAS FOR ENSURING RETENTION AND CONTINUED BUSINESS IN THE HOSPITAL, IT WAS FOR ACQUIRING A BUSINESS AND COMMERCIAL RIGHTS AND IT WAS COMPARABLE WITH TRADE MARK, FRANCHISE, COPYRIGH T ETC. REFERRED TO IN THE FIRST PART OF CLAUSE (II) O F SECTION 32(1) AND SO MUCH SO, GOODWILL WAS COVERED BY THE ABOVE PROVISION OF THE ACT ENTITLING THE ASSESSEE F OR DEPRECIATION. 6.1 THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS HINDUSTAN COCO COLA BEVERAGES PVT. LTD. 331 ITR 192 HELD AS U NDER: HELD, THAT IT WAS CLEAR FROM THE ORDER PASSED BY T HE TRIBUNAL, THAT THE DEPRECIATION WAS CLAIMED ON GOODWILL BY THE ASSESSEE ON ACCOUNT OF PAYMENT MADE FOR THE MARKETING AND TRADING REPUTATION, TRA DE STYLE AND NAME, MARKETING AND DISTRIBUTION, TERRITO RIAL KNOW-HOW, INCLUDING INFORMATION OR CONSUMPTION PATTERNS AND HABITS OF CONSUMERS IN THE TERRITORY A ND DIFFERENCE BETWEEN THE CONSIDERATION PAID FOR BUSINESS AND VALUE OF TANGIBLE ASSETS. THE TRIBUNAL HAD TREATED IT TO BE VALUABLE COMMERCIAL ASSET SIMI LAR TO OTHER INTANGIBLES MENTIONED IN THE DEFINITION OF THE BLOCK OF ASSETS AND, HENCE, ELIGIBLE TO DEPRECIATIO N. IT HAD ALSO BEEN NOTED BY THE TRIBUNAL THAT THESE FACT S WERE STATED BY THE ASSESSEE IN THE AUDIT REPORT AND ITA NO.2062/AHD/2009 THE DCIT (OSD), CIR-8, AHMEDABAD VS SAHITYA MUDRANA LAYA PVT. LTD. 6 THE ASSESSING OFFICER HAD EXAMINED THE AUDIT REPORT AND ALSO MADE QUERIES AND ACCEPTED THE EXPLANATION PREFERRED BY THE ASSESSEE. THE ACCEPTANCE OF THE CLAIM OF THE ASSESSEE BY THE ASSESSING OFFICER WOUL D COME IN THE COMPARTMENT OF TAKING A PLAUSIBLE VIEW INASMUCH AS BASICALLY INTANGIBLE ASSETS WERE IDENTIFIABLE NON-MONETARY ASSETS THAT COULD NOT BE SEEN OR TOUCHED OR PHYSICAL MEASURES WHICH WERE CREATED THROUGH TIME AND/OR EFFORT AND THAT WERE IDENTIFIABLE AS A SEPARATE ASSET. THEY COULD BE IN THE FORM OF COPYRIGHTS, PATENTS, TRADEMARKS, GOODWILL, TRADE SECRETS, CUSTOMER LISTS, MARKETING RIGHTS, FRANCHISES, ETC. WHICH EITHER ARISE ON ACQUISITION OR WERE INTERNALLY GENERATED. GOODWILL CONVEYS A POSITIVE REPUTATION BUILT BY A PERSON/COMPANY/BUSINESS CONCERN OVER A PERIOD OF TIME. THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT IF TWO VIEWS WERE POSSIBLE AND WHEN THE ASSESSING OFFICER HAD ACCEPTED ONE VIEW WHICH WAS A PLAUSIBLE ONE, IT WAS NOT APPROPRIATE ON THE PART OF THE COMMISSIONER TO EXERCISE HIS POWER UNDER SECTION 263 SOLELY ON T HE GROUND THAT IN THE BOOKS OF ACCOUNT IT WAS MENTIONE D AS GOODWILL AND NOTHING ELSE. 7. CONSIDERING THE FACTS IN THE LIGHT OF THE ABOVE DECISIONS, WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE. TH E SAME IS ACCORDINGLY DISMISSED. 8. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 17-06-2011 SD/- SD/- (A. K. GARODIA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 17-06-2011 LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/ LAKSHMIKANT/- -- - ITA NO.2062/AHD/2009 THE DCIT (OSD), CIR-8, AHMEDABAD VS SAHITYA MUDRANA LAYA PVT. LTD. 7 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD