M/s. Bosch Limited, Bangalore V. CIT, Bangalore

ITA 329/BANG/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 9530 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 16-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARSHA PRAKASH
• Assessee Lawyers: P J PARDIWALA
• Keywords: Depreciation; Valuation report; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3); 251; 264; 32; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI K.P.T. THANGAL, VICE PRESIDENT AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO.329/BANG/2009 ASSESSMENT YEAR : 2004-05 BOSCH LIMITED, (FORMERLY MOTOR INDUSTRIES CO. LTD.,) HOSUR ROAD, ADUGODI, BANGALORE 560 030. : APPELLANT VS. THE COMMISSIONER OF INCOME-TAX (LTU), JSS TOWER, 100 FEET RING ROAD, BANASHANKARI III STAGE, BANGALORE 560 085. : RESPONDENT APPELLANT BY : SHRI P.J. PARDIWALA RESPONDENT BY : SHRI HARSHA PRAKASH O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL HAS BEEN PREFERRED BY BOSCH LTD THE A SSESSEE COMPANY - AGGRIEVED BY THE ORDER U/S 263 OF THE ACT OF THE LD. CIT (LTU) FOR THE ASSESSMENT YEAR 2004-05. 2. THE ASSESSEE COMPANY HAS RAISED EIGHT GROUNDS OF APPEAL. ON A PERUSAL, WE FIND THAT GROUND NOS. 1, 7 AND 8 ARE GE NERAL AND NOT SPECIFIC ITA NO. 329/BANG/2009 PAGE 2 OF 12 WHICH, IN OUR CONSIDERED VIEW, DO NOT SURVIVE FOR A DJUDICATION. IN THE REMAINING GROUNDS, THE ESSENCE AND THE CRUX OF THE ISSUES CAN, AT BEST, BE REFORMULATED IN A CONCISE MANNER, AS UNDER: (I) THE LD.CIT(LTU) ERRED IN CONCLUDING THAT THE ASSESS EE WAS NOT ENTITLED TO DEPRECIATION AND THAT THE DEPRECIATION CLAIMED WAS ILLEGAL AND EXCESSIVE; & (II) THE CIT(LTU) ERRED IN REJECTING THE ASSESSEES ALT ERNATE CONTENTION OF TREATING THE EXPENDITURE AS REVENUE EXPENDITURE . 3. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF INC OME, ADMITTING AN INCOME OF RS.446.76 CRORES. THE ASSESSEE HAD CLAIM ED RS.30.25 LAKHS AS DEPRECIATION ON PAYMENT FOR GOODWILL. IN THE SCHE DULE SHOWING DEPRECIATION ON INTANGIBLE ASSETS, IT WAS MENTIONED THAT THE TOTAL AMOUNT PAID TO PHILIPS (INDIA), MUMBAI WAS RS.1.38 CRORES AND AFTER REDUCING THE DEPRECIATION CLAIMED IN THE EARLIER YEAR, WDV WAS R S.1.21 CRORES. ON THIS WDA, DEPRECIATION OF RS.30.25 LAKHS WAS CLAIMED. THE ASSESSMENT FOR THE AY UNDER DISPUTE WAS CONCLUDED, DETERMINING THE TAXABLE INCOME AT RS.451.93 CRORES, THEREBY ALLOWING THE DEPRECIATION AS CLAIMED. 3.1. ON EXAMINING THE RELEVANT RECORDS SUO MOTU, T HE LD.CIT (LTU) WAS OF THE VIEW THAT THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE COMPANY WAS ILLEGAL AND EXCESSIVE WHICH WAS NOT CONSIDERED BY THE AO. 4. THE FACTS OF THE ISSUE, THE ASSESSEES CONTENTIO NS AND THE REASONING OF THE CIT (LTU) IN SETTING-ASIDE THE ASSESSMENT OR DER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE U/S 263 OF THE ACT ARE SUMMARIZED AS UNDER: ITA NO. 329/BANG/2009 PAGE 3 OF 12 FACTS OF THE CASE : (A) THE ASSESSEE HAD ACQUIRED A BUSINESS FROM PHILLIPS (INDIA), MUMBAI, IN ADDITION TO THE SPECIFIED TANGIBLE AND INTANGIBL E ASSETS, TEN EMPLOYEES OF THE TRANSFEREE COMPANY WERE ALSO ABSOR BED AND THE SKILL AND THE KNOW-HOW BROUGHT BY THESE EMPLOYEES W AS NOTHING BUT BUSINESS INFORMATION BEING ELIGIBLE FOR DEPRECIAT ION. IN THE VALUERS REPORT, IT WAS CLASSIFIED RS.1.38 CRORES B EING THE BUSINESS INFORMATION UNDER THE CATEGORY OF OTHER IDENTIFIA BLE INTANGIBLES (GOODWILL); (B) HOWEVER, THE INFORMATION AVAILABLE ON RECORD INDIC ATED THAT ASSESSEES VALUER HAD NOT STATED THE SAID AMOUNT WA S IN FACT BUSINESS INFORMATION, IN STEAD, IT WAS CLAIMED AS GOODWILL. THE CIT(LTU) HAD FORMED AN OPINION THAT THE ASSESSEE HA D CLAIMED WRONG AND EXCESS DEPRECIATION ON BUSINESS INFORMAT ION WHICH WAS ALLOWED BY THE AO WITHOUT EXAMINING THE SAME AND, THUS, THE ASSESSMENT ORDER PASSED WAS ERRONEOUS AND PREJUDICI AL TO THE INTEREST OF REVENUE; & (C) THE ASSESSEE COMPANY WAS REQUIRED TO SHOW-CAUSE U/S 263 OF THE ACT AS TO WHY THE IMPUGNED ORDER SHOULD NOT BE REVISED U/S 263 OF THE ACT. 4.1. THE CONTENTIONS OF THE ASSESSEE COMPANY : (I) THE ASSESSEE ACQUIRED THE COMMUNICATION, SECURITY A ND IMAGING BUSINESS OF PHILLIPS (INDIA) LIMITED VIDE AGREEMENT DT.31/12/02. THE CONSIDERATION OF RS.40 MILLION WAS FOR THE NET AGGR EGATE OF THE ASSETS AND LIABILITIES FIXED ASSETS (COMPUTERS), CURRENT ASSETS (INVENTORIES AND RECEIVABLES), CURRENT LIABILITIES (PAYABLES) AN D OTHER INTANGIBLES; (II) IN ADDITION TO THE SPECIFIED TANGIBLE AND INTANGIBL E ASSETS, TEN EMPLOYEES OF THE TRANSFEREE COMPANY HAVING A WIDE E XPERIENCE IN THE BUSINESS WERE ALSO ABSORBED IN TERMS OF THE AGREEME NT; - BUSINESS INFORMATION BROUGHT IN BY THE EMPLOYEES W OULD BE AVAILABLE TO THE COMPANY AND THE KNOW-HOW DEVELOPED BY THEM DURING THEIR SERVICE WITH THEIR EARLIER COMPANY WAS ONE OF THE IMPORTANT COMPONENTS OF THE ASSETS BOUGHT OVER BY T HE COMPANY; (III) THE BUSINESS INFORMATION I.E., KNOW-HOW BROUGHT IN BY THEM HAD HELPED THE ASSESSEE TO ACHIEVE SALES OF RS.31 MILLION AND RS.213 MILLION IN FY 02-03 (3 MONTHS) AND FY 03-04 RESPECTIVELY, RESULTI NG IN INCREASE IN OVERALL PROFITS; - THUS, OUT RS.40 MILLION, RS.1.38 CRORES UNDER THE H EAD OTHER IDENTIFIABLE INTANGIBLES IS ASCRIBABLE TO BUSINES S INFORMATION (KNOW-HOW). IN THIS CONTEXT, KNOW-HOW WAS BUSINESS SKILLS, MARKET ITA NO. 329/BANG/2009 PAGE 4 OF 12 KNOWLEDGE, KNOWLEDGE OF SUPPLIERS, CUSTOMERS AND TH EIR PREFERENCES, BEHAVIOURS AND, THUS, IT WAS AN INTANG IBLE ASSET; (IV) THE VALUER IN THEIR REPORT HAVE ATTRIBUTED RS.1.38 CRORES BEING BUSINESS INFORMATION UNDER THE CATEGORY OF OTHER IDENTIFIA BLE INTANGIBLES (GOODWILL). HENCE, THE BUSINESS INFORMATION (KNOW -HOW) HAS BEEN DEPRECIATED U/S 32 AT THE RATE OF 25%. (V) THE WORD KNOW-HOW HAS NOT BEEN DEFINED U/S 32. H OWEVER, EXPLANATION U/S 35AB DESCRIBES THE WORD AND THE EXT RACT HAS BEEN REPRODUCED; & (VI) IF OTHER IDENTIFIABLE INTANGIBLES ACQUIRED BY TH E ASSESSEE IS GOODWILL AND NO DEPRECIATION IS ALLOWABLE ON GOODWILL, THEN THE AMOUNT OF EXPENDITURE WHICH THE ASSESSEE WOULD HAVE INCURRED IN RECRUITING AND TRAINING NEW SET OF EXPERIENCED EMPLOYEES CAPABLE O F ACHIEVING THE SALE/PROFIT, IF THE ASSESSEE HAD NOT TAKEN OVER THE EMPLOYEES FROM THE TRANSFEROR, BE GRANTED AS REVENUE EXPENDITURE. 4.2. AFTER EXAMINING THE VARIOUS ARGUMENTS PUT-FORTH BY THE ASSESSEE COMPANY, THE CONCLUSION OF THE CIT (LTU) WAS THAT T HE CLAIM OF DEPRECIATION WAS ILLEGAL AND EXCESSIVE WHICH WAS NO T CONSIDERED BY THE AO AND, THUS, THE ASSESSMENT ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDINGLY, THE IMPUGNED ORD ER WAS SET ASIDE BY INVOKING THE PROVISIONS OF S. 263 OF THE ACT. THE REASONS FOR SUCH A CONCLUSION ARE SUMMARIZED AS UNDER: (I) THE ASSESSEES CLAIM OF RS.1.38 CRORES CLASSIFIED B Y VALUER AS GOODWILL IS, IN FACT, VALUE ATTRIBUTABLE TO BUSI NESS INFORMATION ELIGIBLE TO DEPRECIATION IS NOT APPROPRIATE; (II) THE ASSESSEES CLAIM THAT THE FIRM OF CAS IN THEIR REPORT DT.6/2/03 HAVE ATTRIBUTED RS.1.38 CRORES BEING THE BUSINESS I NFORMATION UNDER THE CATEGORY OF OTHER IDENTIFIABLE INTANGIBLE S [GOODWILL] IS FACTUALLY INCORRECT AS CAN BE SEEN FROM ITS VALUER S REPORT IN PARA 4.5. UNDER THE HEAD OTHER IDENTIFIABLE INTANGIBLES . MOST IMPORTANTLY, THE FIGURE OF RS.1.38 CRORES IS ADOPTE D BY THE ASSESSEE HAS BEEN ARRIVED AT BY THE VALUER ON THE B ASIS OF 2 YEARS PROFIT. THIS METHOD WAS ADOPTED WHILE VALUING ASSE T LIKE GOODWILL AND NOT FOR ASSET LIKE BUSINESS INFORMA TION OR KNOW HOW; ITA NO. 329/BANG/2009 PAGE 5 OF 12 - IT IS FOR THIS REASON THAT THE VALUER HAD ATTRIBUTE D THE RESIDUARY VALUE TO GOODWILL AND VALUED IT ACCORDINGLY. THE V ALUERS REPORT SHOWS THAT THE GOODWILL HAD BEEN VALUED ON T HE BASIS OF THE PROFITS OF THE COMPANY. PAST PROFITS OF THE CO MPANY CANNOT BE THE BASIS FOR THE VALUATION OF HUMAN RESOURCE. VALUATION OF HUMAN RESOURCE IS ENTIRELY DIFFERENT FROM VALUATION OF GOODWILL. THE ASSET IN QUESTION IS THEREFORE NOTHIN G BUT THE GOODWILL OF THE BUSINESS ACQUIRED BY THE ASSESSEE. THE METHOD OF VALUATION ADOPTED BY THE VALUER ALSO CONFIRMS TH IS; (III) THE AGREEMENT TO TRANSFER BUSINESS BETWEEN THE ASSE SSEE AND PHILLIPS INDIA LTD. HAD MADE THE FOLLOWING ASPECTS - THE PURCHASE IS MADE AS A GOING CONCERN AND AS A SL UMP SALE BASIS (CLAUSE 3.1.) THAT - THE SALE IS CONCLUDED BY HANDING OVER PHYSICAL POSS ESSION OF ALL BUSINESS INFORMATION, MARKET KNOW-HOW, CUSTOMER /CLIENT DETAILS ETC. STORED IN TANGIBLE FORM (COMPUTER FILE S, DATA STORED ON FLOPPY DISKETTES AND COMPACT DISKETTES, HARD COP Y OF DATA ETC.) TO THE LOCAL PURCHASER [CLAUSE 4.2.(B)] IT IS CLEAR FROM THE ABOVE THAT THE ASSESSEE RECEIV ED ALL TANGIBLE/INTANGIBLE ASSETS WHICH INCLUDED BUSINESS INFORMATION: ALL STORED IN TANGIBLE FORM. IN FACT , IF THE VALUERS REPORT IS EXAMINED, THE BUSINESS INFORMAT ION HAS BEEN INCLUDED UNDER THE FOLLOWING HEADS [PARAS: 4.2 , 4.3 AND 4.4.] - TRADEMARKS, TECHNICAL DESIGNS, DRAWINGS ETC. MANUFA CTURING AND OTHER CONTRACTS. - THE REPORT DIDNT ASSIGN ANY SPECIFIC VALUE FOR BUS INESS INFORMATION OR KNOW-HOW FOR THE REASON THAT HE HAD INCLUDED IN THE ABOVE AND CHOSE TO MAKE LAST I.E., 4 TH CATEGORY SHOWN IN PARA 4.5. AS GOODWILL SEPARATELY FOR RS.1.38 CROR ES. THEREFORE, THE CLAIM OF GOODWILL CATEGORIZED BY I TS VALUER CAN NO BE BUSINESS INFORMATION THEREBY CONTRADICT ING ITS VALUER. - THE ASSESSEES ARGUMENT THAT THE AMOUNT PAID TO PHI LLIPS ACTUALLY REPRESENTS THE VALUE OF THE SKILL AND KNOW -HOW DEVELOPED BY THE TEN EMPLOYEES TAKEN OVER BY THE AS SESSEE. THE HUMAN RESOURCE, HOWEVER, DOES NOT FALL WITHIN T HE DEFINITION OF INTANGIBLE ASSETS GIVEN EXPLN.3 IN S.32. - ABSORBING THE EMPLOYEES DOES NOT AMOUNT TO ACQUIRIN G A RIGHT. THE KNOWLEDGE AND SKILL OF THE EMPLOYEES CANNOT BE TREATED AS ASSESSEES RIGHT OR OWNERSHIP. THE ASSESSEE CANNOT CLAIM THAT IT OWNS THE EMPLOYEES. THE AGREEMENT THROUGH WHICH THEY WERE ABSORBED DOES NOT STIPULATE ANY PERIOD FOR WHI CH THEY ITA NO. 329/BANG/2009 PAGE 6 OF 12 MUST WORK FOR THE ASSESSEE. THEY ARE AT LIBERTY TO QUIT THE SERVICES AT ANY GIVEN POINT OF TIME; - ANOTHER ARGUMENT WAS THAT THE WORD KNOW-HOW HAS NO T BEEN DEFINED U/S 32, BUT, THE SAME HAS BEEN EXPLAINED IN S.35AB - ANOTHER ARGUMENT THAT BUSINESS INFORMATION WHICH ASSISTS THE BUSINESS ALSO A KNOW-HOW AND THEREFORE, THE S AID AMOUNT QUALIFIES FOR DEPRECIATION IS INCORRECT AS THE RELE VANT S.32 HAS MENTIONED KNOW-HOW IN SPECIFIC MANNER. - EXTENSIVELY QUOTING THE RULING OF THE APEX COURT IN THE CASE OF CIT V. B.C.SRINIVASA SETTY (1981) 21 CTR 138 TO REB UT THE ASSESSEES CLAIM OF THE EMPLOYEES FROM PHILIPS BROU GHT IN BUSINESS INFORMATION DOES NOT STAND IN VIEW OF VE RY NATURE OF GOODWILL WHICH IS ASSOCIATED IN SUCH CIRCUMSTANCES SLUMP SALE TRANSACTION. THUS, THE VALUER HAD ASSIGNED THE VAL UE OF 1.38 CRORE AS GOODWILL WHICH THE ASSESSEE NOW CONTRADI CTS IT AS BUSINESS INFORMATION - DREW STRENGTH FROM THE CASES OF (I) CIT V. MANGALOR E GANESH BEEDI WORKS 264 ITR 142 (KAR), (II) GURUJI ENTERTAI NMENT NETWORK LTD. 108 TTJ (DEL) 180 & (III) K.G.KESHWANI V. ACIT 308 ITR (AT) 271 [ITAT, MUMBAI], HE TERMED THAT TH E ASSESSEE MADE AN ARTIFICIAL DISTINCTION IN THE NAME OF BUSINESS INFORMATION (KNOW-HOW); (IV) REJECTING THE ALTERNATIVE PLEA THAT IF ITS CONTENTI ON THAT RS.1.38 CRORES CANNOT BE CONSIDERED AS BUSINESS INFORMATIO N (KNOW-HOW) BEING ELIGIBLE FOR DEPRECIATION , THEN THE SAME MAY BE TREATED AS REVENUE EXPENDITURE ON THE GROUND THAT MUCH AMOUNT THE ASSESSEE WOULD HAVE SPENT ON RECRUITING AND TRAINING NEW SET OF EXPERIENCE EMPLOYEES CAPABLE OF ACHIEVING HE SALES/PROFIT, IF THE ASSESSEE HAD NOT TAKEN OVER THE EMPLOYEES FROM THE TRANSFEROR, IT WAS HELD THAT GOODWILL CANNOT BE TREATED AS ANY OTHER TYPE OF E XPENDITURE; - THE VALUER HAD NOT CLASSIFIED THE SAID AMOUNT AS BEING REVENUE EXPENDITURE AS HIS FIRM CONCLUSION WAS THAT THE AMO UNT WAS GOODWILL. 5. AGGRIEVED, THE ASSESSEE COMPANY HAS COME UP WITH THE PRESENT APPEAL. THE FORCEFUL ARGUMENTS OF THE LD. A R REVO LVED AROUND WHAT HAS BEEN PUT-FORTH BEFORE THE LD. CIT (LTU) DURING THE COURSE OF PROCEEDINGS U/S.263. BUTTRESS HIS CONTENTIONS; HE CAME UP WITH THE FOLLOWING SUBMISSIONS: ITA NO. 329/BANG/2009 PAGE 7 OF 12 (I) IN ADDITION TO THE SPECIFIED TANGIBLE AND INTANGIBL E ASSETS ACQUIRED BY THE ASSESSEE, TEN EMPLOYEES OF THE TRANSFEREE CO MPANY HAVING WIDE EXPERIENCE IN THE BUSINESS (MAXIMUM EXPERIENCE BEING FOURTEEN YEARS) WERE ALSO ABSORBED IN TERMS OF THE AGREEMENT AS IT WAS THOUGHT PRUDENT FROM THE BUSINESS POINT OF VIEW . BUSINESS INFORMATION BROUGHT IN BY THE EMPLOYEES WOULD BE AV AILABLE TO THE ASSESSEE INSTANTLY AND WOULD HELP THE ASSESSEE TO C ARRY ON THE BUSINESS WITHOUT ANY GESTATION PERIOD. THE KNOW-HO W DEVELOPED BY THEM DURING THEIR SERVICE WITH THE THEIR EARLIER COMPANY WAS ONE OF THE IMPORTANT COMPONENTS OF THE ASSETS BOUGH T OVER BY THE ASSESSEE; - THE BUSINESS INFORMATION (KNOW-HOW) BROUGHT IN BY T HESE EMPLOYEES HAD HELPED THE ASSESSEE TO ACHIEVE SALES OF RS.31 MILLION AND RS. 213 MILLION IN FYS 2002-03 (3 MONTH S) AND 03- 04 RESPECTIVELY, RESULTING IN INCREASE IN OVERALL P ROFITS; - OUT OF RS.40 CRORES CONSIDERATION PAID, RS.1.38 CRO RES TO OTHER IDENTIFIABLE INTANGIBLES IS ASCRIBABLE TO BUSINESS INFORMATION (KNOW-HOW) BROUGHT IN BY THESE EMPLOYE ES. THEY BROUGHT WITH THEM THE KNOW-HOW BUSINESS SKILLS, M ARKET KNOWLEDGE, KNOWLEDGE OF SUPPLIERS, CUSTOMERS AND TH EIR PREFERENCES, BEHAVIOUR ETC; WHICH WAS ALSO AN INTAN GIBLE ASSET; - THE CAS IN THEIR REPORT HAVE ATTRIBUTED RS.1.38 CRO RES BEING THE BUSINESS INFORMATION UNDER THE CATEGORY OF O THER IDENTIFIABLE INTANGIBLES; (II) THE BUSINESS INFORMATION (KNOW-HOW) ACQUIRED BY T HE ASSESSEE AS DESCRIBED ABOVE, HAS BEEN DEPRECIATED U/S 32 AT THE RATE OF 25%; - THE WORD KNOW-HOW HAS NOT BEEN DEFINED IN S.32. HOWEVER, EXPLANATION U/S 35AB DESCRIBES THE WORD KNOW-HOW; - IT IS CLEAR THAT BUSINESS INFORMATION WHICH ASSIS TS THE BUSINESS IS ALSO A KNOW-HOW AND, HENCE, RS..1.38 CRORES ASCRIBED TO THE BUSINESS INFORMATION IS KNOW-HOW ON WHICH DEPRECIATION IS AVAILABLE; (III) THE VALUER HAD NOT ATTACHED ANY VALUE TO THE GOODWI LL. IN PARA 4.5.1 WHERE THE VALUER DEALT WITH VALUATION OF OTH ER INTANGIBLE ASSETS HE HAD SAID THAT THE VALUE OF OTHER INTANGI BLE ASSETS WOULD BE THE VALUE ATTRIBUTED TO THE GOODWILL. THE VALUE R IN HIS WISDOM FELT THAT THE VALUE OF THE OTHER INTANGIBLE ASSETS WAS THE VALUE ITA NO. 329/BANG/2009 PAGE 8 OF 12 ATTACHABLE TO GOODWILL AND DETERMINE TO ARRIVE AT T HE VALUE ATTRIBUTABLE TO THE OTHER INTANGIBLE ASSETS. THE CONCLUDING PARA OF THE VALUATION REPORT ALSO DID NOT SPEAK ANYTHING ABOUT GOODWILL; - THE ASSESSMENT CONCLUDED U/S 143(3) WAS NEITHER ERR ONEOUS NOR PREJUDICIAL TO THE INTERESTS OF THE REVENUE AND , THUS, THE IMPUGNED ORDER OF CIT(LTU) REQUIRES TO BE QUASHED; & (IV) RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS: (A) MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 I TR 83 (SC); (B) CIT V. MAX INDIA LTD. (2007) 295 ITR 282 (SC); (C) SKYLINE CATERERS (P) LTD. V. ITO (2008) 20 SOT 266 (MUM) (SMC); (D) IBM INDIA LTD. V. CIT(A)-I (2007) 105 ITD 0001 . 5.1. ON THE OTHER HAND, THE LD. D R HAD VEHEMENTLY ARGUED THAT THE AO HAD NEITHER DISCUSSED NOR CONSIDERED IN DETAIL THE ISSUE AND ALSO FAILED TO EXAMINE IT IN DEPTH. THUS, THE ORDER OF THE AO WAS ERRONEOUS WHICH HAD RESULTED IN THE INVOKING OF THE PROVISIONS OF S.263 OF THE ACT BY THE LD.CIT (LTU). TO DRIVE HOME HIS POINT, THE LD. D R HAD PLA CED STRONG RELIANCE ON THE FOLLOWING CASE LAWS: (I) 251 ITR 149; (II)259 ITR 598 & (III) 206 ITR 36 6. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS AN D ALSO CRITICALLY PERUSED THE RELEVANT RECORDS. 6.1. THE MAIN CONTENTION OF THE ASSESSEE COMPANY IS THAT, OUT OF RS.40 CRORES CONSIDERATION PAID, ALLOCATION OF RS.1.38 CR ORES TO OTHER IDENTIFIABLE INTANGIBLES IS ASCRIBABLE TO BUSINESS INFORMATION BROUGHT IN BY THOSE EMPLOYEES. THOSE EMPLOYEES BROUGHT WITH THEM THE K NOW-HOW BUSINESS SKILLS, MARKET KNOWLEDGE, KNOWLEDGE OF SUPPLIERS, C USTOMERS AND THEIR PREFERENCES AND SO ON SO FORTH WHICH, ACCORDING TO THE ASSESSEE, HAD ITA NO. 329/BANG/2009 PAGE 9 OF 12 CONTRIBUTED SALES OF RS.213 MILLION, RESULTING IN I NCREASE IN OVERALL PROFITS DURING THE AY UNDER DISPUTE. THUS, THE ASSESSEE C OMPANY SUBSCRIBE THAT THE KNOW-HOW BROUGHT WITH BY THOSE EMPLOYEES WAS AL SO AN INTANGIBLE ASSET WHICH QUALIFIES FOR DEPRECIATION. 6.2. TAKING CUE FROM THE VALUERS REPORT [ PARA S: 4.2., 4.3, AND 4.4 ], THE LD.CIT (LTU) WAS OF THE FIRM VIEW THAT THE ASSE SSEE COMPANY HAD RECEIVED ALL TANGIBLE AND INTANGIBLE ASSETS WHICH I NCLUDED BUSINESS INFORMATION ALL STORED IN TANGIBLE FORM. DRAWING STRENGTH FROM THE FINDINGS OF THE HONBLE APEX COURT REPORTED IN (1981) 21 CTR (SC) 138; JURISDICTIONAL HIGH COURT REPORTED IN 264 ITR 142 A ND THE HONBLE ITAT, MUMBAI REPORTED IN 308 ITR (AT) 271, THE LD. CIT(LT U) CONCLUDED THAT THE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE WAS ILLE GAL AND EXCESSIVE WHICH WAS NOT CONSIDERED BY THE AO IN THE IMPUGNED ORDER WHICH, ACCORDING TO THE CIT(LTU), BEING ERRONEOUS AND PREJ UDICIAL TO THE INTEREST OF THE REVENUE, HE INVOKED THE PROVISIONS OF S.263 OF THE ACT TO SET-ASIDE THE AOS ORDER. 6.3. THE ACTION OF THE CIT(LTU) HAS BEEN STRONGL Y CONTESTED BY THE ASSESSEE COMPANY FOR THE REASONS NARRATED IN THE FO RE-GOING PARAGRAPHS. LET US NOW ANALYZE THE LEGAL POSITIO N ON THE ISSUE. SKYLINE CATERERS (P) LTD. V. ITO (2008) 20 SOT 266 (MUM.) (SMC) : THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING CATERING, HOUSE-KEEPING AND ALLIED SERVICES TO A COMPANY HLL. SUCH CATERING BUSINESS WAS EARLIER CARRIED ON BY ONE R UNDER A CATERING CONTRACT WITH HLL FOR THE LAST 30 YEARS. THE ASSESSEE ENTERED INT O AN AGREEMENT WITH R FOR TAKING OVER THE CATERING CONTRACT OF R WITH H LL AGAINST A CONSIDERATION OF RS.27 LAKHS. OUT OF THE SAID SUM, THE ASSESSEE PAID A SUM ITA NO. 329/BANG/2009 PAGE 10 OF 12 OF RS.25 LAKHS TO R AS A CONSIDERATION FOR ACQUIR ING ALL THE RIGHTS UNDER THE CATERING CONTRACT BETWEEN R AND HLL AND BALANCE S UM OF RS.2 LAKHS WAS PAID TO R FOR NOT COMPETING WITH THE ASSESSEE. TH E ASSESSEE REFLECTED THE SAID AMOUNT IN ITS BALANCE SHEET AS GOODWILL AND CL AIMED DEPRECIATION THEREON TREATING THE SAME AS INTANGIBLE ASSETS AS W ELL COMMERCIAL RIGHTS ACQUIRED BY IT. THE AO HELD THAT THE GOODWILL DID NOT FIND PLACE IN S.32 AS PART OF INTANGIBLE ASSETS WHICH INCLUDED ONLY KNOW- HOW, PATENTS, COPYRIGHTS, TRADE MARKS ETC. HE FURTHER HELD THAT THE EXPRESSIO N SIMILAR NATURE IN S.32(1)(II) WOULD NOT INCLUDE THE GOODWILL. THUS, D EPRECIATION WAS DISALLOWED. ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE AO O N THE GROUND THAT THE ENTIRE PAYMENT OF RS.27 LAKHS WAS PAID TO R FOR N OT COMPETING WITH THE ASSESSEE WHICH AMOUNTED TO CAPITAL EXPENDITURE NOT COVERED BY S.32(1)(II). ON SECOND APPEAL, IT WAS HELD THAT - A COMBINED READING OF THE AGREEMENT DT.16/8/00 ENTERED INTO BETWEEN THE ASSES SEE AND R REVEALED THAT THE ASSESSEE HAD PAID THE SUM OF RS.25 LAKHS F OR ACQUIRING ALL THE RIGHTS UNDER THE CATERING CONTRACT BETWEEN R AND HLL AS WELL AS CERTAIN ASSETS BELONGING TO R. ON THE OTHER HAND, RS.2 LAKHS HA D BEEN PAID ON THE GROUND THAT R WOULD NOT COMPETE WITH THE ASSESSEE IN ANY BUSINESS OF CATERING AT HLL CANTEEN. THEREFORE, CIT (A) WAS NO T JUSTIFIED IN HOLDING THAT THE ENTIRE RS.27 LAKHS WAS PAID TO R FOR NOT COMPETING WITH THE ASSESSEE. RS.25 LAKHS WAS MADE FOR ACQUIRING ALL T HE RIGHTS UNDER THE CATERING CONTRACT BETWEEN R AND HLL AND FOR ACQUI RING ARTICLES AND PARAPHERNALIA BELONGING TO R WHICH WERE LYING IN THE CANTEEN. SINCE THE PAYMENT RELATED TO THE ACQUISITION OF RIGHTS UNDER THE CONTRACT, IT COULD NOT BE SAID THAT PAYMENT WAS EITHER ON ACCOUNT OF GOODW ILL OR ON ACCOUNT OF NOT TO COMPETE WITH THE ASSESSEE. FURTHER, MERELY BECA USE THE ASSESSEE SHOWED THE SAID PAYMENT ON ACCOUNT OF GOODWILL IN THE BOOK S OF ACCOUNT, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE. A PERUSAL OF THE PROVISIONS OF S.32(1)(II) SHOWS TH AT THE LEGISLATURE HAS SPECIFIED CERTAIN INTANGIBLE ASSETS ON WHICH DEPREC IATION CAN BE CLAIMED, NAMELY, KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES. THESE SPECIFIC INTANGIBLE ASSETS ARE FOLLOWED BY TH E EXPRESSION ANY OTHER BUSINESS OF COMMERCIAL RIGHTS OF SIMILAR NATURE. I N SUCH A SITUATION, THE RULE OF EJUSDEM GENERIS WOULD APPLY. THE SCOPE OF THE R ULE IS THAT WORDS OF A GENERAL NATURE FOLLOWING SPECIFIC AND PARTICULAR WO RDS SHOULD BE CONSTRUED AS LIMITED TO THINGS WHICH ARE OF THE SAME NATURE A S THOSE SPECIFIED. THE GENERAL WORDS TAKE THE COLOUR FROM THE SPECIFIC WOR DS. THE SPECIFIC WORDS IN THE ABOVE SECTION REVEAL THE SIMILARITY IN THE SENS E THAT ALL THE INTANGIBLE ASSETS SPECIFIED ARE TOOLS OF THE TRADE, WHICH FACI LITATE THE ASSESSEE CARRYING ON THE BUSINESS. THEREFORE, THE EXPRESSION ANY OT HER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE WOULD INCLUDE SUCH RIGHTS WHICH CAN BE USED AS A TOOL TO CARRY ON THE BUSINESS. IF THIS T EST WAS TO BE APPLIED, THEN ITA NO. 329/BANG/2009 PAGE 11 OF 12 THE RIGHTS ACQUIRED BY THE ASSESSEE UNDER THE CATER ING CONTRACT BETWEEN R AND HLL WOULD FALL WITHIN THE EXPRESSION MENTIONED ABOVE. FURTHER, SINCE CATERING BUSINESS AT HLL CANTEEN COULD BE CARRIED O N ONLY WITH THE HELP OF SUCH RIGHTS UNDER THE CONTRACT, THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION. 6.4. THE ASSESSEE COMPANY HAS ALSO PLACED STRON G RELIANCE ON THE RULING OF THE HONBLE SUPREME COURT IN THE CASES RE PORTED IN (2000) 243 ITR 83 AND IN (2007) 295 ITR 282 WHEREIN THE ISSUE OF INVOKING THE PROVISIONS OF SECTION 263 BY THE CIT HAS BEEN DEA LT WITH IN AN ELABORATE AND EXHAUSTIVE MANNER. WITH RESPECTS, WE RECORD THA T SINCE THE RULING OF THE HONBLE ITAT, MUMBAI BENCH SMC IS ON THE POIN T; WE ARE NOT DRAWING STRENGTH FROM OTHER DECISIONS ON WHICH THE ASSESSEE COMPANY HAD PLACED RELIANCE, TO DECIDE THE ISSUE. 6.5. WE HAVE ALSO PERUSED THE CASE LAWS ON W HICH THE REVENUE HAS PLACED ITS RELIANCE. 6.6. THE FINDING OF THE HONBLE ITAT, MUMBAI B ENCH SMC REFERRED SUPRA IS DIRECTLY APPLICABLE TO THE FACTS OF THE CA SE ON HAND. RESPECTFULLY FOLLOWING THE SAID DECISION, WE ARE OF THE CONSIDER ED VIEW THAT THE ASSESSEE COMPANY IS ENTITLED TO CLAIM DEPRECIATION ON BUSINESS INFORMATION AMOUNTING TO RS.1.38 CRORES UNDER THE CATEGORY OF OTHER IDENTIFIABLE INTANGIBLES (GOODWILL) WHICH HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE AND ALLOWED BY THE AO AT RS.35,25,666/-. 6.7. IN VIEW OF THE ABOVE, WE ARE OF THE CONS IDERED OPINION THAT THE IMPUGNED ORDER OF THE LD.CIT (LTU) IS MISCONCEIVED WHICH REQUIRES TO BE ITA NO. 329/BANG/2009 PAGE 12 OF 12 ASSAILED AND THAT OF THE ORDER OF THE AO IS TO BE R ESTORED ON THIS COUNT. IT IS ORDERED ACCORDINGLY. 7. SINCE THE ASSESSEE COMPANYS MAIN GRIEVANCE H AS ALREADY BEEN ADDRESSED TO, ITS ALTERNATE CONTENTION OF TREATING THE EXPENDITURE AS REVENUE EXPENDITURE HAS BECOME OBSOLETE AND IRREL EVANT. ACCORDINGLY, THE ALTERNATE CONTENTION OF THE ASSESSEE COMPANY IS NOT TAKEN COGNIZANCE OF. 8. IN THE RESULT, THE ASSESSEE COMPANYS APPEAL IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS 31ST DAY OF AUGUST, 2009. SD/- SD/- (K.P.T. THANGAL ) (A. MOHAN ALANKAMONY ) VICE PRESIDENT ACCOUNTANT MEMBER BANGALORE, DATED, THE 31 ST AUGUST, 2009. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.