Mirkana Engineering P. Ltd., New Delhi V. DCIT, New Delhi

ITA 3574/DEL/2011

• Counselvise Citation: 357420114 RSA 2011
• Duration Of Justice: 1 year(s) 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 30-10-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 18-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANOOP KR SINGHDR
• Assessee Lawyers: SANJEEV KAPOORAR
• Keywords: Depreciation; Question of law; Scheme of amalgamation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI E BENC H BEFORE SHRI RAJPAL YADAV, JM & SHRI A.N. PAHUJA, AM ITA NOS.3574,5752&5753/DEL/2011 AYS:2006-07 TO 08-09 M/S MIRKANA ENGINEERING P. LTD., A-19, MCIE MATHURA RD., NEW DELHI-44 V/S . DEPUTY CIT, CIRCLE- 6 (1), NEW DELHI [PAN : AACCM 5513 F] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SANJEEV KAPOOR,AR REVENUE BY SHRI ANOOP KR. SINGH,DR DATE OF HEARING 30-10-2012 DATE OF PRONOUNCEMENT 09-11-2012 O R D E R A.N.PAHUJA:- THESE THREE APPEALS FILED ON 18 TH JULY, 2011 BY THE ASSESSEE AGAINST AN ORDER DATED 28-02-2011 FOR THE AY 2006-0 7 AND ON 26.12.2011 AGAINST TWO SEPARATE ORDERS DATED 30 TH SEPTEMBER, 2011 FOR THE AYS 2007-08 AND 2008-09, OF THE LD. CIT(A)-IX, NEW DELHI ,RAISE THE FOLLOWING GROUNDS:- I.T.A. NO.2574/DEL.2011-AY 2006-07 1. THE ORDER OF THE LEARNED CIT(A)-IX IS BAD IN LA W AND ON THE FACTS OF THE CASE. THE DISALLOWANCE OF DEPRECIATIO N OF ` `3,80,953/- ON GOODWILL OF THE COMPANY IS CONTRARY TO LAW AND FACTS OF THE CASE. 2. THAT CONTENTION OF THE LEARNED CIT(A) THAT THE A PPELLANT HAD MADE PAYMENT FOR TANGIBLE ASSETS AND THE DIFFERENCE IN THE BOOK VALUE OF SUCH TANGIBLE ASSETS AND THE TOTAL PA YMENT MADE WAS CAPITALIZED AS GOODWILL, IS FACTUALLY INCO RRECT. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE COST OF THE INTANGIBLE ASSET I.E., GOODWILL WAS CALCULATED IN ITA N OS.3574,3752&5753 /DEL./2011 2 ACCORDANCE WITH CLAUSE 1 OF THE TAKEOVER AGREEMENT DATED 01.04.2002 AND THE PAYMENT WAS DISCHARGED ACCORDING LY. 4. THE CONTENTION OF THE LEARNED CIT(A) THAT DEPREC IATION CANNOT BE ALLOWED ON AN ASSET FOR WHICH NO COST HAS BEEN PAID, IS INCORRECT AND CONTRARY TO THE FACTS OF THE CASE. 5. THE FACT THAT THE DEALERSHIP COMMENCED IN THE NA ME OF THE ASSESSEE COMPANY, ITSELF REFLECT THE DEEMED CONSENT OF THE PRINCIPAL COMPANY I.E. TELCO TO THE TRANSFER OF THE FRANCHISE. 6. THE LEARNED CIT(A) HAS NOT CONSIDERED THE FOLLO WING CASES AS CITED BY THE ASSESSEE DURING APPELLATE PROCEEDIN GS. A. CIT VS. HINDUSTAN COCA COLA BEVERAGES PVT. LTD. (DELHI HIGH COURT) B. NAT STEEL EQUIPMENT PVT. LTD. VS. COLLECTOR OF C ENTRAL EXCISE, AIR 1988 SC 631 C. CIT VS. B.C. SRINIVASA SETTY, (1981) 128 ITR 294 (SC) D. CIT VS. CHUNILAL PRABHUDAS & CO. (1970) 76 ITR 5 66. 7. THAT THE ASSESSEE CRAVES THE LEAVE TO ADD, AMEND , MODIFY, DELETE ANY OF THE GROUNDS OF APPEAL BEFORE OR AT TH E TIME OF HEARING. I.T.A. NO.5752/DEL./2011-AY 2007-08 1. THE ORDER OF THE LEARNED CIT(A)-IX IS BAD IN LAW AN D ON THE FACTS OF THE CASE. 2. THE LEARNED CIT(A) HAS FAILED TO CONSIDER THAT G OODWILL IS AN INTANGIBLE ASSET ENTITLED TO DEPRECIATION. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE COST OF THE INTANGIBLE ASSET I.E., GOODWILL WAS CALCULATED IN A CCORDANCE WITH CLAUSE 1 OF THE TAKEOVER AGREEMENT DATED 01.04.2002 AND THE PAYMENT WAS DISCHARGED ACCORDINGLY. 4. THE DISALLOWANCE OF DEPRECIATION OF ` `2,85,715/- ON GOODWILL IS UNJUSTIFIED. ITA N OS.3574,3752&5753 /DEL./2011 3 5. THE LEARNED CIT(A) HAS NOT CONSIDERED THE FOLLOW ING CASES AS CITED BY THE ASSESSEE DURING APPELLATE PROCEEDINGS. A. CIT VS. HINDUSTAN COCA COLA BEVERAGES PVT. LTD. (DELHI HIGH COURT) B. NAT STEEL EQUIPMENT PVT. LTD. VS. COLLECTOR OF C ENTRAL EXCISE, AIR 1988 SUPREME COURT 631 C. CIT VS. B.C. SRINIVASA SETTY, (1981) 128 ITR 294 (SC) D. BHARATBHAI J. VYAS VS. INCOME-TAX OFFICER (2005) 97 ITD 248 (AHD) E. CIT VS. CHUNILAL PRABHUDAS & CO. (1970) 76 ITR 5 66. 6. THAT THE ASSESSEE CRAVES THE LEAVE TO ADD, AMEND , MODIFY, DELETE ANY OF THE GROUNDS OF APPEAL BEFORE OR AT TH E TIME OF HEARING. I.T.A. NO.5753/DEL./2011-AY 2008-09 1. THE ORDER OF THE LEARNED CIT(A)-IX IS BAD IN LAW AND ON THE FACTS OF THE CASE. 2. THE LEARNED CIT(A) HAS FAILED TO CONSIDER THAT G OODWILL IS AN INTANGIBLE ASSET ENTITLED TO DEPRECIATION. 3. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE COST OF THE INTANGIBLE ASSET I.E., GOODWILL WAS CALCULATED IN ACCORDANCE WITH CLAUSE 1 OF THE TAKEOVER AGREEMENT DATED 01.04.2002 AND THE PAYMENT WAS DISCHARGED ACCORDING LY. 4. THE DISALLOWANCE OF DEPRECIATION OF ` 2,14,286/- ON GOODWILL IS UNJUSTIFIED. 5. THE LEARNED CIT(A) HAS NOT CONSIDERED THE FOLLOW ING CASES AS CITED BY THE ASSESSEE DURING APPELLATE PROCEEDIN GS. A. CIT VS. HINDUSTAN COCA COLA BEVERAGES PVT. LTD. (DELHI HIGH COURT) B. NAT STEEL EQUIPMENT PVT. LTD. VS. COLLECTOR OF C ENTRAL EXCISE, AIR 1988 SUPREME COURT 631 ITA N OS.3574,3752&5753 /DEL./2011 4 C. CIT VS. B.C. SRINIVASA SETTY, (1981) 128 ITR 294 (SUPREME COURT) D. BHARATBHAI J. VYAS VS. INCOME-TAX OFFICER (2005) 97 ITD 248 (AHD) E. CIT VS. CHUNILAL PRABHUDAS & CO. (1970) 76 ITR 5 66. 6. THAT THE ASSESSEE CRAVES THE LEAVE TO ADD, AMEND , MODIFY, DELETE ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. SINCE SIMILAR ISSUES ARE INVOLVED, THESE APPEAL S WERE HEARD SIMULTANEOUSLY FOR THE SAKE OF CONVENIENCE AND ARE BEING DISPOSED OF THROUGH THIS COMMON ORDER. 3. FACTS, IN BRIEF, AS PER RELEVANT ORDERS FOR THE AY 2006-07 ARE THAT RETURN FILED ON 16.11.2006, DECLARING INCOME OF ` `69,82,820/-AND SUBSEQUENTLY REVISED ON 18.11.2006, AFTER BEING PROCESSED U/S 14 3(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT),WAS SEL ECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT, ISSUED O N 11 TH OCTOBER, 2007. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSIN G OFFICER (A.O. IN SHORT) NOTICED THAT THE ASSESSEE CLAIMED DEPRECIATION OF ` 3,80,953/- ON GOODWILL .TO A QUERY BY THE AO, SEEKING TO DISALLOW THE DEPRECIATI ON, THE ASSESSEE CLAIMED THAT IT ACQUIRED CURRENT BUSINESS OPERATIONS I.E. DEALER SHIP OF TELCO FROM A-ONE MOTORS PVT. LTD. ALONG WITH FRANCHISE OF TELCO .WHI LE RELYING UPON DECISION IN THE CASE OF BHARATBHAI J. VYAS VS. INCOME-TAX OFFIC ER (2005) 97 ITD 248 (AHD) ,IT WAS ARGUED THAT THEIR CLAIM FOR DEPRECIATION WAS WI THIN THE FOUR CORNERS OF SPECIFIC AMENDMENT TO SECTION 32(1)(II) OF THE ACT. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE ON THE GROUN D THAT THE ASSESSEE DID NOT TAKE OVER RIGHT TO USE BRAND A-ONE MOTORS AND THE COMPANY A-ONE MOTORS PVT. LTD. CONTINUED TO EXIST INDEPENDENTLY AS A SEPARAT E ENTITY .THIS ESTABLISHED THAT THE ASSESSEE WAS USING THE NAME A-ONE MOTORS WHIC H DID NOT AMOUNT TO ITA N OS.3574,3752&5753 /DEL./2011 5 TRANSFER OF GOODWILL. THE AO FURTHER MENTIONED THA T MERELY MENTIONING IN THE AGREEMENT THAT GOODWILL HAS BEEN TRANSFERRED FOR AN AMOUNT WILL NOT ESTABLISH IT AS SUCH AND THE ASSESSEE MIGHT HAVE PAID CERTAIN CO NSIDERATION TO A-ONE MOTORS IN THE COURSE OF ITS BUSINESS TRANSACTION BU T THAT DOES NOT AMOUNT TO TRANSFER OF GOODWILL AND AUTOMATICALLY ENTITLE IT T O A CLAIM OF DEPRECIATION ON IT. SINCE THE ASSESSEE DID NOT SUBMIT A COPY OF AGREEME NT BETWEEN A-ONE MOTORS AND THE ASSESSEE RELATING TO GOODWILL WHILE GOODWIL L WAS NOT SPECIFICALLY INCLUDED IN THE INTANGIBLES OR IN THE CATEGORY ANY OTHER BU SINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE ON WHICH DEPRECIATION WAS ADMISSIBL E, REFERRING TO PROVISIONS OF SECTION 2(11) AND SECTION 32(1) OF THE ACT AND DECI SIONS IN POLESTAR ELECTRONIC PVT. LTD. VS. ADDL. CST (1978) 41 STC 409, 421 (SC) ; JAGDISH CH. PATNAIK VS. STATE OF ORISSA, JT. 1998 (3) S 105; AZAD TOBACCO ( P) LTD. VS. CIT, (1997) 225 ITR 1002 (ALL), RELYING ON CST VS. MODI SUGAR MILLS LTD., AIR 1961 SC1047, RELATING TO INTERPRETATION OF STATUTES, THE AO DISA LLOWED THE CLAIM OF DEPRECIATION ON GOODWILL. 3.1 FOR SIMILAR REASONS, THE AO DISALLOWED THE C LAIM FOR DEPRECIATION ON GOODWILL IN THE AYS 2007-08 AND 2008-09. 4. ON APPEAL, THE LD. CIT(A) UPHELD THE FINDINGS O F THE AO IN THE AY 2006-07,HOLDING AS UNDER:- 5.10 I HAVE CONSIDERED THE FINDINGS RECORDED BY T HE LEARNED ASSESSING OFFICER AS PER THE ASSESSMENT ORD ER, THE SUBMISSIONS MADE BY THE LEARNED AR AND THE FACTS OF THE CASE ON RECORD. IT IS SEEN THAT THE APPELLANT HAD ACQUIRED AN ONGOING CONCERN AND MADE A LUMP SUM PAYMENT TO TAKE OVER AL L THE ASSETS AND LIABILITIES. THE APPELLANT HAS ARGUED THAT IT HAD MADE PAYMENT FOR THE TANGIBLE ASSETS AND/THE DIFFERENCE IN THE B OOK VALUE OF SUCH TANGIBLE ASSETS AND THE TOTAL PAYMENT MADE WAS CAPI TALIZED AS GOODWILL AND DEPRECIATION WAS CLAIMED THEREON. THE APPELLANT SUBMITTED THAT GOODWILL IS A VALUABLE COMMERCIAL AS SET SIMILAR TO OTHER INTANGIBLES MENTIONED IN THE DEFINITION OF TH E BLOCK OF ASSETS AND, HENCE, ELIGIBLE FOR DEPRECIATION. 5.11 I DO NOT AGREE WITH THE AFORESAID CONTENTION OF THE APPELLANT THAT GOODWILL IS ELIGIBLE FOR DEPRECIATIO N FOR THE BASIC ITA N OS.3574,3752&5753 /DEL./2011 6 REASON THAT THE SAME IS NOT INCLUDED IN THE LIST OF ASSETS MENTIONED IN SECTION 32(1)(II) OF THE ACT. IN CASE, THE LEGI SLATURE WANTED TO ALLOW DEPRECIATION ON GOODWILL IT WOULD HAVE SURELY ADDED THE SAME IN THE SAID SECTION. EVEN IN THE CASE OF CIT VS. H INDUSTAN COCA COLA BEVERAGES PVT. LTD., ON WHICH THE APPELLANT HA S RELIED, HONBLE DELHI HIGH COURT HAS HELD THAT DEPRECIATION CANNOT BE DISALLOWED MERELY FOR THE REASON THAT AN ASSET WAS CATEGORIZED AS GOODWILL. THUS, THE RATIO OF THE SAID DECISION I S NOT APPLICABLE IN THE APPELLANTS CASE AS DISCUSSED HEREINAFTER. 5.12 ON PERUSAL OF THE TAKEOVER AGREEMENT DATED NI L ENTERED ON 1.4.2002, IT IS SEEN THAT THERE IS NO CO ST OF INTANGIBLE ASSETS EXPRESSLY PAID BY THE APPELLANT. THE APPELL ANTS CONTENTION THAT THE DIFFERENCE IN THE BOOK VALUE OF SUCH TANGI BLE ASSETS AND THE TOTAL PAYMENT MADE WAS TREATED AS GOODWILL IS NOT T ENABLE. NO MECHANISM HAS BEEN PROVIDED IN THE SAID AGREEMENT T O DETERMINE THE COST OF THE GOODWILL/INTANGIBLE ASSETS AND HENC E SUCH ARGUMENT IS WITHOUT ANY BASIS AND LIABLE TO BE REJECTED. FR OM THE FACTS OF THE CASE AND ON PERUSAL OF THE TAKEOVER AGREEMENT, IT C ANNOT BE SAID THAT ANY AMOUNT WAS ACTUALLY PAID WAS FOR ANY INTAN GIBLE ASSETS OR COMMERCIAL RIGHT. THUS, THE CONSIDERATION PAID NOT HING BUT THE AMOUNT BARGAINED FOR ACQUIRING/ THE ONGOING CONCERN UNDER REFERENCE. IT CAN BE SAID THAT DEPRECIATION CANNOT BE ALLOWED ON AN ASSET FOR WHICH NO COST HAS BEEN PAID. FURTHER, TH ERE IS NOTHING ON RECORD TO SHOW THAT THE PRINCIPAL COMPANY I.E. TELC O HAD APPROVED/CONSENTED FOR THE TRANSFER OF THE FRANCHIS E. 5,13 IN VIEW OF THE AFORESAID DISCUSSION, I HOLD T HAT DEPRECIATION CANNOT BE ALLOWED TO THE APPELLANT AS NO INTANGIBLE ASSET WAS ACQUIRED BY THE APPELLANT. THE GROUND NO S. 2, 3 & 4 ACCORDINGLY REJECTED FOR THE REASONS DISCUSSED HERE INABOVE. 4.1 FOLLOWING HIS AFORESAID ORDER FOR THE AY 2006- 07, THE LD. CIT(A) UPHELD THE FINDINGS OF THE AO IN THE AYS 2007-08 & 2008-09. 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH PAGES 20,22 TO 24 OF THE PB CONTENDED THAT CLAUSE 1 OF THE AGREEMENT DATED 1.4.2002 SPECIFICALLY MENTIONED ABOUT THE TR ANSFER OF GOODWILL, WHICH HAD BEEN COMPUTED AT 1.75 YEARS PURCHASE OF LAST YEAR S BOOK PROFITS AFTER THE PROVISION OF TAXATION. THE ASSESSEE HAVING ACQUIRE D FRANCHISE OF THE TELCO AND TRADE NAME A-ONE MOTORS, FROM A-ONE MOTORS PVT. LT D., PAID FOR INTANGIBLES AND ITA N OS.3574,3752&5753 /DEL./2011 7 CAPITALIZED THE SAME IN THE BOOKS OF ACCOUNTS AS GO ODWILL AND CLAIMED DEPRECIATION THEREON. WHILE RELYING UPON DECISION DATED 22 ND AUGUST, 2012 OF THE HONBLE APEX COURT IN CIT VS SMIFS SECURITIES L TD. IN CIVIL APPEAL NO.5961 OF 2012, THE LD. AR ARGUED THAT THE ASSESSE E IS ENTITLED TO DEPRECIATION ON GOODWILL. ON THE OTHER HAND, THE LD. DR SUPPORTE D THE FINDINGS OF LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON BY THE LD. AR ON BEHALF OF THE ASSESSEE. THE AO DISALLOWED THE CLAIM OF DEPRECIATION ON GOOD WILL ON THE GROUND THAT THE ASSESSEE DID NOT TAKE OVER RIGHT TO USE BRAND A-ON E MOTORS AND THE COMPANY A-ONE MOTORS PVT. LTD. CONTINUED TO EXIST INDEPENDE NTLY AS A SEPARATE ENTITY WHILE MERELY MENTIONING IN THE AGREEMENT THAT GOOD WILL HAS BEEN TRANSFERRED FOR AN AMOUNT ,DID NOT ESTABLISH IT AS SUCH AND THE ASS ESSEE DID NOT SUBMIT A COPY OF AGREEMENT WITH THE A-ONE MOTORS PVT. LTD. IT WA S ALSO POINTED OUT THAT GOODWILL WAS NOT SPECIFICALLY INCLUDED IN THE INTA NGIBLES OR IN THE CATEGORY ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE ON WHICH DEPRECIATION WAS ADMISSIBLE IN TERMS OF PROVISIONS OF SECTION 32(1) OF THE ACT. THOUGH THE AO MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSESSEE DID NOT SUBMIT A COPY OF AGREEMENT RELATING TO GOODWILL, BOTH THE AO AND THE LD. CIT(A) REFERRED TO THE RELEVANT AGREEMENT. ON APPEAL, THE LD. CIT(A) UPHE LD THE FINDINGS OF THE AO ON THE GROUND THAT A PERUSAL OF THE TAKEOVER AGREEMENT ENTERED ON 1.4.2002, THERE WAS NOTHING TO SUGGEST THAT ANY COST OF INTANGIBLE ASSETS WAS EXPRESSLY PAID BY THE ASSESSEE AND THEIR CONTENTION THAT THE DIFFEREN CE IN THE BOOK VALUE OF SUCH TANGIBLE ASSETS AND THE TOTAL PAYMENT MADE WAS TREA TED AS GOODWILL, WAS NOT TENABLE, THEREBEING NO MECHANISM IN THE SAID AGREEM ENT TO DETERMINE THE COST OF THE GOODWILL/INTANGIBLE ASSETS NOR ANY AMOUNT WAS A CTUALLY PAID FOR ANY INTANGIBLE ASSETS OR COMMERCIAL RIGHT AND NOR EVEN THERE WAS ANY EVIDENCE, SUGGESTING THAT THE TELCO APPROVED/CONSENTED FOR T HE TRANSFER OF THE FRANCHISE. ON THE OTHER HAND, THE LD. AR APPEARING BEFORE US W HILE CARRYING US THROUGH THE RELEVANT AGREEMENT ENTERED ON 1.4.2002 AND REFERRED TO BY THE LD. CIT(A), ITA N OS.3574,3752&5753 /DEL./2011 8 CONTENDED THAT CLAUSE 1 OF THE AGREEMENT ITSELF PRO VIDED FOR PAYMENT FOR GOODWILL. IN TERMS OF THE SAID CLAUSE GOODWILL AMOU NTED TO 48,16,000/- AS COMPUTED ON PAGE 20 OF THE PB AND ACCORDINGLY, CAPI TALIZED IN THE BOOKS FOR THE 2002-03. THE ASSESSEE IS STATED TO HAVE CLAIMED DEP RECIATION ON GOODWILL IN THE PRECEDING YEARS. THERE IS NO MATERIAL BEFORE US THA T SUCH A CLAIM WAS DISALLOWED IN THE EARLIER YEARS BY THE AO NOR LD. DR OR THE LD . AR BROUGHT TO OUR NOTICE THAT THE CLAIM WAS DISPUTED IN THE PRECEDING YEARS. THE RELEVANT CLAUSE 1 OF THE AGREEMENT ENTERED ON 01.04.2002, READS AS UNDER:- 1. THE VENDOR WILL SELL AND THE COMPANY WILL PURC HASE ALL THE SAID BUSINESS OF VENDOR CARRIED ON BY THE VENDO R AS AFORESAID AND THE GOODWILL THEREOF AT A MUTUALLY AGREED VALUE WHICH IS 1.75 YEARS PURCHASE OF THE LAST YEARS BOOK PROFIT AFTER PROVISION FOR TAXATION (ROUNDED OFF TO THE NEAREST OF 1000.00 RUP EES) AND THE RIGHT TO REPRESENT THE COMPANY AS CARRYING ON BUSIN ESS IN SUCCESSION TO THE VENDORS CONCERN AND TO USE THE N AME OF SUCH CONCERN AS TRADE NAME OF ITS BUSINESS TO BE CARRIE D ON BY THE COMPANY. 6.1 FURTHER THE CLAUSE 9 OF THE SAID AGREEM ENT READS AS UNDER: THE VENDOR WILL WHENEVER REQUIRED BY THE COMPANY ENTER IN TO A COVENANT WITH THE COMPANY THAT IT WILL NOT DIRECTLY OR INDIRECTLY USE OR ALLOW TO USE OR CAUSE TO ALLOW TO USE TITLEA-ON E MOTORS OR A NEARLY RESEMBLING NAME IN CONNECTION WITH THEIR BUS INESS OR ANY OF THE PARTNERSHIP FIRM OR A COMPANY IN WHICH ANY RELA TIVE OF THE DIRECTOR OF THE VENDOR IS A PARTNER OR A DIRECTOR. THIS RESTRICTION SHALL REMAIN IN VOGUE TILL CONTINUATION OF BUSINESS BY TH E COMPANY UNDER NAME AND STYLE OF A-ONE MOTORS OR ON OBTAINING OF A PRIOR PERMISSION BY THE VENDOR TO THAT EFFECT IN WRITING FROM THE COMPANY. 6.2 IN TERMS OF THE AFORESAID CLAUSE, THE SAID COMPANY A-ONE MOTORS PVT. LTD. CHANGED ITS NAME TO DEUTSCHE MOTORS PVT LTD. WITH EFFECT FROM 1.3.2006[PAGE 25 OF PB]. ON PERUSAL OF THE AFORESA ID AGREEMENT AND THE FACTS NARRATED BEFORE US, ESPECIALLY WHEN THERE IS NO MAT ERIAL BEFORE US THAT THE CLAIM OF DEPRECIATION ON GOODWILL HAS BEEN DENIED IN THE EARLIER YEARS, WE ARE OF THE OPINION THAT DEPRECIATION ON GOOD WILL CANNOT BE D ENIED IN THE YEARS UNDER ITA N OS.3574,3752&5753 /DEL./2011 9 CONSIDERATION IN VIEW OF DECISION OF THE HONBLE AP EX COURT IN THE CASE OF SMIFS SECURITIES LTD.(SUPRA) WHEREIN, INTER ALIA, FOLLOWI NG QUESTION OF LAW WAS PLACED FOR ANSWER BY THE HONBLE COURT:- QUESTION NO.[B]: 'WHETHER GOODWILL IS AN ASSET WITH IN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961, AND WHETHER DEPRECIATION ON ` GOODWILL' IS ALLOWABLE UNDER THE SAID SECTION?' 6.3 HONBLE APEX COURT ANSWERED THE QUESTION IN THE FOLLOWING TERMS: IN THE PRESENT CASE, THE ASSESSEE HAD CLAIM ED DEDUCTION OF ` .54,85,430/- AS DEPRECIATION ON GOODWILL. IN THE COURSE OF HEARING, THE EXPLANATION REGARDING ORIGIN OF SUCH GOODWILL WAS GIVEN AS UNDER: 'IN ACCORDANCE WITH SCHEME OF AMALGAMATION OF YSN SH ARES & SECURITIES (P) LTD WITH SMIFS SECURITIES LTD (DULY SANCTIONED BY HON'BLE HIGH COURTS OF BOMBAY AND CALCUTTA) WITH RETROSPECTIVE EFECT FROM 1ST APRIL, 1998, ASSE TS AND LIABILITIES OF YSN SHARES & SECURITIES (P) LTD WERE TRANSFERRED TO AND VEST IN THE COMPANY. IN THE PROCESS GOODWILL HAS ARISEN IN THE BOOKS OF THE COMPANY.' IT WAS FURTHER EXPLAINED THAT EXCESS CONSIDERATI ON PAID BY THE ASSESSEE OVER THE VALUE OFNET ASSETS ACQUIRED OF YSN SHARES AND SECURITIES PRIVATE LIMITED [AMALGAMATING COMPANY] SHOULD BE CONSIDERED AS GOODWILL ARISING O N AMALGAMATION. IT WAS CLAIMED THAT THE EXTRA CONSIDERATION WAS PAID TOWARDS THE R EPUTATION WHICH THE AMALGAMATING COMPANY WAS ENJOYING IN ORDER TO RETAIN ITS EXISTIN G CLIENTELE. THE ASSESSING OFFICER HELD THAT GOODWILL WAS NOT AN ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INCOME TAX ACT, 1961 [`ACT', F OR SHORT]. WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32(1) OF THE ACT: ' EXPLANATION 3.-- FOR THE PURPOSES OF THIS SUB-SECTI ON, THE EXPRESSIONS `ASSETS' AND `BLOCK OF ASSETS' SHALL MEAN-- [A] TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE; [B] INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADEMARKS, LICENCES,FRANCHISES OR ANY OTHER BUSINESS OR COMMER CIAL RIGHTS OF SIMILAR NATURE.' EXPLANATION 3 STATES THAT THE EXPRESSION `ASSET' SH ALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES , FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. A READING THE WORDS `ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION `ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR ITA N OS.3574,3752&5753 /DEL./2011 10 NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS WOULD STR ICTLY APPLY WHILE INTERPRETING THE SAID EXPRESSION WHICH FINDS PLACE IN EXPLANATION 3(B). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT `GOOD WILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE PRE SENT CASE, THE ASSESSING OFFICER, AS A MATTER OF FACT, CAME TO THE CONCLUSION THAT NO AMOU NT WAS ACTUALLY PAID ON ACCOUNT OF GOODWILL. THIS IS A FACTUAL FINDING. THE COMMISSION ER OF INCOME TAX (APPEALS) [`CIT(A)', FOR SHORT] HAS COME TO THE CONCLUSION TH AT THE AUTHORISED REPRESENTATIVES HAD FILED COPIES OF THE ORDERS OF THE HIGH COURT ORDERI NG 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 CONS IDERATION; THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CONSTITUTE D 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 A SSESSEE-COMPANY STOOD INCREASED. THIS FINDING HAS ALSO BEEN UPHELD BY INCOME TAX APP ELLATE TRIBUNAL [`ITAT', FOR SHORT]. WE SEE NO REASON TO INTERFERE WITH THE FACTUAL FIND ING. 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 I N WHICH IT HAD RAISED ONLY THE QUESTION AS TO WHETHER GOODWILL IS AN ASSET UNDER S ECTION 32 OF THE ACT. IN THE CIRCUMSTANCES, BEFORE THE HIGH COURT, THE REVENUE D ID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABOVE. FOR THE AFORE-STATED REASONS, WE ANSWER QUESTION NO .[B] ALSO IN FAVOUR OF THE ASSESSEE. 7. IN THE LIGHT OF VIEW TAKEN BY THE HONBLE APEX COURT THAT GOODWILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT, WE HAVE NO HESITATION IN VACATING THE FINDINGS OF THE LD. CIT(A) AND ACCORDI NGLY, DIRECT THE AO TO ALLOW THE CLAIM OF DEPRECIATION ON GOODWILL IN TERMS OF AFORE SAID DECISION OF THE HONBLE APEX COURT. CONSEQUENTLY, GROUND NOS.1V TO 5 IN THE APPEAL FOR THE AY 2006-07 AND GROUND NOS. 2 TO 4 IN THE APPEAL FOR THE AY 20 07-08 & 2008-09 ARE ALLOWED WHILE GROUND NO. 6 IN THE APPEAL FOR THE AY 2006-07 AS ALSO GROUND NO.5 IN THE APPEALS FOR THE AYS 2006-07 & 2007-08 DO NOT SURVIV E FOR OUR ADJUDICATION. 8.. GROUND NO.1 IN THE APPEALS FOR THE AYS 2007-08 AND 2008-09 BEING GENERAL IN NATURE, DO NOT REQUIRE ANY SEPARATE ADJU DICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US AS RESIDUARY GR OUND NO.7 IN THE APPEAL FOR ITA N OS.3574,3752&5753 /DEL./2011 11 THE AY 2006-07 AND GROUND NO.6 IN THE APPEALS FOR T HE AYS 2007-08 & 2008-09, ACCORDINGLY, ALL THESE GROUNDS ARE DISMISSED. 9. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 10. IN THE RESULT, THESE THREE APPEALS ARE ALLOWED . SD/- S D/- (RAJPAL YADAV) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. DEPUTY CIT,CIRCLE-6(1),NEW DELHI. 3. CIT CONCERNED. 4. CIT(A)-IX, NEW DELHI 5. DR, ITAT,E BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT