NXP Semiconductors India Private Limited, Bangalore V. Deputy Commissioner of Income Tax, Bangalore

ITA 397/BANG/2017

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9691 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R PREMI
• Keywords: Capital asset; Depreciation; Scheme of amalgamation; Set aside
• Section: 143(3); 250; 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES C BENCH: BANGALORE BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA. NO. 397 /BANG/201 7 (ASSESSMENT YEAR: 20 0 7 - 08 ) M/S. NXP INDIA PVT. LTD., (SUCCESSOR OF NXP SEMICONDUCTORS INDIA PVT. LTD.) INFORMATION TECHNOLOGY PARK, NAGAWARA VILLAGE, KASABA HOBLI, NAGAWARA, BANGALORE - 560 045. .APPELLANT PAN AADCP 9454H VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. RESPONDENT. ASSESSEE BY: SHRI CHAVALI NARAYAN, C.A. REVENUE BY: SMT. R. PREMI, JCIT (D.R) DATE OF HEARING : 09.12 .2019 DATE OF PRONOUNCEMENT : 03 . 01 .20 20 O R D E R PER SHRI PAVAN KUMAR GADALE, JM : THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX - 5, BANGALORE PASSED UNDER SECTION 143(3) R.W.S. 254 AND 250 OF THE INCOME TAX ACT, 1961 ('THE ACT'). 2 ITA NO. 397/BANG/2017 2. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT GROUND NOS.1 & 5 ARE GENERAL IN NATURE AND IS NOT PRESSING GROUND NOS.2 & 3 AND MADE ENDORSEMENT . THEREFORE THE EFFECTIVE GROUND S OF APPEAL BEING GROUND NO.4 WHICH IS AS UNDER : 3. THE ASSESSEE IS ENGAGED IN SOFTWARE DEVELOPMENT SERVICES AND THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE ACT DT.27.09.2012 WITH TOTAL INCOME OF RS.54,10,24,876 AND ON FURTHER APPEAL ITAT HAS ADMITTED ADDITIONAL GROUND OF APPEAL OF THE ASSESSEE ON CHARGING OF DEPRECIATION ON GOODWILL AND REMANDED TO THE ASSESSING OFFICER FOR CON S I D E R A TION VIDE ORDER IT(TP)A NO.1560/BANG/2012 DT.5.3.2015. SUBSEQUENTLY THE ASSESSING OFFICER DEALT ON THE DISPUTED ISSUE AT PAR A 3.38 AND DISALLOWED DEPRECIATION AND PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) R.W.S. 254 DT.5.11.2015. AGGRIEVED BY THE A.OS ORDER, THE ASSESSEE HAS FILED AN APPEAL WITH THE 3 ITA NO. 397/BANG/2017 CIT(APPEALS) WHEREAS THE CIT(APPEALS) CONFIRMED THE ACTION OF ASSESSIN G OFFICER AND DISMISSED THE ASSESSEE'S APPEAL. AG GRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSESSEE HAS FILED AN APPEAL WITH THE TRIBUNAL. 4. AT THE TIME OF HEARING, THE LEARNED AUTHORISED REPRESENTATIVE HAS ARGUED ONLY ON THE DISPUT ED ISSUE OF DEPRECIATION ON GOODWILL AND EMPHASIZED THAT THE CIT(APPEALS) HAS ERRED IN CONFIRMING THE DISALLOWANCE WHEREAS THE CIT (APPEALS) HAS RELIED ON DECISION OF DCIT VS. TOYO ENGINEERING LTD. ITA NO.3279/MUM/2008 WHICH WAS REV ERSED BY THE HON' BLE HIGH COURT. THE LEARNED AUTHORISED REPRESENTATIVE SUPPORTED THE ARGUMENT WITH HON'BLE APEX COURT DECISION AND CO - ORDINATE BENCH DECISION AND PRAYED FOR ALLOWING THE APPEAL OF THE ASSESSEE. CONTRA, THE LD. DR RELIED ON THE ORDERS OF CIT(APPEALS). 5. WE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. PRIMA FACIE, THE SOLE MATRIX OF THE DISPUTED ISSUE IS WITH RESPECT TO GRANTING OF DEPRECIATION ON GOODWILL. THE LD. ARS CONTEN TION THAT THE DECISION RELIED BY LOWER AUTHORITIES IN R ESPECT OF DCIT VS. TOYO ENGINEERING LTD. (SUPRA) , WAS REVERSED BY THE HON'BLE BOMBAY HIGH COURT IN TOYO ENGINEERING INDIA LTD. VS. DCIT IN IT ( AL ) NO.1330/2012 DT.30.10.2012. WE FOUND THAT THE CIT(APPEALS) HAS DEALT ON THE ISSUE AND AWARE OF THE HON'BLE BOMBAY HIGH COURT DECISION BUT DECLINE D TO GRANT DEPRECIATION ON GOODWILL AS PER PARA 8.2 OF THE CIT (APPEALS) ORDER WHICH IS READ AS UNDER : 4 ITA NO. 397/BANG/2017 WE FOUND THE CO - ORDINATE BENCH OF MUMBAI TRIBUNAL IN DCIT VS. TOYOTO ENGINEERING INDIA LIMITED IN ITA NO.327 9/MUM/2008 DT.13.10.2014 HAS DEALT ON THE ISSUE AT PAGES 2 TO 4 PARAS 3 TO 8 OF THE ORDER WHICH IS READ AS UNDER : 3. THE ONLY ISSUE INVOLVED IN THIS GROUND RELATES TO THE ALLOWABILITY OF DEPRECIATION ON GOODWILL. ON THIS ISSUE, THE HON BLE HIGH COURT DELIVERED ITS DECISION VIDE INCOME TAX APPEAL (L) NO.1330 OF 2012, DATED 30TH OCTOBER, 2012 AND THE SAME READS AS UND ER: 1. WHETHER THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN DISALLOWING THE DEPRECIATION ON GOODWILL UNDER SECTION 32(1)(II) OF THE INCOME TAX ACT, 1961 IS THE BASIC QUESTION RAISED IN THIS APPEAL. 2. THE APEX COURT IN THE CASE OF COMMISSIONER O F INCOME TAX VS. SMIFS SECURITIES LIMITED REPORTED IN 348 ITR 302 (SC) HAS HELD THAT THE DEPRECIATION WOULD BE ALLOWABLE ON GOODWILL. IN THIS VIEW OF THE MATTER, THE IMPUGNED ORDER OF THE INCOME TAX APPELLATE TRIBUNAL IS QUASHED AND SET ASIDE AND THE MATTE R IS RESTORED TO THE FILE OF THE INCOME TAX APPELLATE TRIBUNAL FOR FRESH DECISION ON MERITS AND IN ACCORDANCE WITH LAW. 3. THE APPEAL IS ACCORDINGLY DISPOSED OF IN ABOVE TERMS WITH NO ORDER OF COSTS. 4. BEFORE US, AS PER THE LD COUNSEL, SINCE THE HON BLE HIGH COURT HAS QUASHED THE FINDING OF THE TRIBUNAL ON THIS ISSUE AND DIRECTED THE TRIBUNAL TO DECIDE THE SAME IN THE LIGHT OF THE RATIO OF THE APEX COURT JUDGMENT IN THE CASE OF SMIFS SECURITIES LIMITED [348 ITR 302 (SC)], THE CLAIM OF THE ASSESSEE IS REQUIRED TO BE ALLOWED IN FULL. FURTHER, ELABORATING ON THE DIRECTION OF THE HON BLE HIGH COURT RELATING TO THE FRESH DECISION ON MERITS AND IN ACCORDANCE WITH LAW, ON THE ISSUE OF THE VERY NATURE OF THE GOODWILL , 5 ITA NO. 397/BANG/2017 LD COUNSEL FOR THE ASSESSEE MENTIONED THAT THERE IS NO DISPUTE ON THE NATURE OF GOODWILL AS DECIDED BY THE HON BLE HIGH COURT WHILE APPROVING THE SCHEME OF AMALGAMATION. IN THIS REGARD, LD COUNSEL BROUGHT OUR ATTENTION TO THE ORDER OF THE HON BLE HIGH COURT IN THE MATTER OF SCHEME OF AMALGAMAT ION OF CASABLANCAS GANNON ENGINEERING LIMITED WITH TOYO ENGINEERING INDIA LIMITED AND READ OUT THE FOLLOWING RELEVANT PORTION FROM PAGE 97 OF THE PAPER BOOK WHICH READS AS UNDER: .AND THIS COURT DOTH FURTHER ORDER THAT ON AND FROM THE EFFECTIVE DATE, AS DEFINED IN THE SCHEME, THE ASSETS AND LIABILITIES APPEARING IN THE BOOKS OF TRANSFEROR COMPANY AS ON THE APPOINTED DATE SHALL BECOME AND BE SHOWN AS ASSETS AND LIABILITIES OF THE TRANSFEREE COMPANY AT THE SAME VALUES AS THEY APPEARED IN THE BOOKS OF TH E TRANSFEROR COMPANY AND THAT THE DIFFERENCE, IF ANY, BETWEEN THE VALUES OF THE ASSETS AND LIABILITIES TAKEN OVER FROM THE TRANSFEROR COMPANY SHALL BE TRANSFERRED TO THE GOODWILL OF THE TRANSFEREE COMPANY AND THIS COURT DOTH FURTHER ORDER THAT THE PETITIO NER COMPANY DO WITHIN THIRTY DAYS AFTER THE DATE OF THE 5. WHAT IS CLAIMED UNDER THE HEAD GOODWILL IS BASED ON THE FIGURES APPEARED IN THE BOOKS OF THE TRANSFEREE COMPANY. THEREFORE, THERE IS NO DISPUTE ABOUT THE QUANTUM AS WELL AS THE NATURE OF THE GOODWILL. FURTHER, LD COUNSEL ALSO RELIED ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SADANAND S. VARDE & ORS. VS. STATE OF MAHARASHTRA & ORS [2001] 247 ITR 609 (BOM) AND DEMONSTRATED THAT IT IS A STATUTORY NOW THAT THE AO SHOULD RE LY ON THE BOOK VALUES ONLY AND SHOULD NOT CONSIDER THE MARKET VALUES OF THE ASSETS IN QUESTION. IN THIS REGARD, LD COUNSEL READ OUT THE FOLLOWING FROM PAGE 23 OF THE SAID JUDGMENT. THE COURT HAS DISCRETION AND POWER TO REJECT A SCHEME EVEN IF ALL THE S HAREHOLDERS AND CREDITORS HAVE AGREED TO IT. BUT ONCE THE SCHEME IS SCRUTINIZED BY THE COMPANY COURT AND SANCTIONED BY AN ORDER MADE BY IT UNDER SECTION 391 OF THE COMPANIES ACT, IT CEASES TO RETAIN THE CHARACTER OF CONTRACT AND OPERATES BY FORCE OF THE ST ATUTE . FOR THE ABOVE, THE HON BLE HIGH COURT RELIED ON THE JUDGMENT OF THE HON BLE SUPREME COURT IN THE CASE OF J.K. (BOMBAY) PVT. LTD VS. NEW KAISER - I - HIND SPINNING & WEAVING CO. LTD (1970) 40 COMP CAS 689. THUS, IT IS THE ARGUMENT OF THE LD COUNSEL T HAT BY VIRTUE OF THE JUDGMENT OF THE HON BLE BOMBAY HIGH COURT IN THE CONTEXT OF AMALGAMATION, THE DIFFERENCE SHOULD BE CONSIDERED AS GOODWILL AND THE SAME HAS TO COMPUTED BASED ON THE BOOK VALUES ONLY. COMING TO THE ISSUE OF GRANTING OF DEPRECIATION U/S 32(1)(II) IN RESPECT OF THE INTANGIBLE ASSET (GOODWILL), IT IS A SETTLED LAW IN VIEW OF THE APEX COURT JUDGMENT IN THE CASE OF SMIFS SECURITIES LIMITED (SUPRA) THAT THE SAME IS A DEPRECIABLE ASSET. 6. ON THE OTHER HAND, LD DR RELIED ON THE ORDER OF THE AO. FURTHER, HE MENTIONED THAT THE ISSUE MAY BE REMANDED TO THE FILE OF THE AO FOR DECIDING THE ISSUE ON MERITS. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE CITED JUDGMENTS OF THE HIGHER JUDICIARY. O N CONSIDERING THE RELEVANCE AND IMPORTANCE OF THE SAID JUDGMENTS, WE HAVE EXTRACTED THE RELEVANT PORTIONS IN THE ABOVE MENTIONED PARAS OF THIS ORDER. IT IS NOW BINDING ON US THAT THE DIFFERENCE, IF ANY, BETWEEN THE BOOK VALUE OF THE ASSETS AND THE LIABILIT IES, SHOULD BE TRANSFERRED TO GOODWILL ACCOUNT OF THE ASSESSEE. THEREFORE, CONSIDERING THE JUDGMENT OF THE BOMBAY HIGH COURT, NEITHER THE NATURE OF THE GOODWILL NOR THE QUANTITY OF THE GOODWILL CAN BE NOW DISPUTED. IN ANY CASE, IT IS NOT THE CASE OF THE A SSESSING OFFICER THAT THERE ARE ANY DIFFERENCES IN QUANTITY OF THE GOODWILL. IT IS ALSO A DECIDED ISSUE IN VIEW OF THE APEX COURT JUDGMENT IN THE CASE OF SMIFS SECURITIES LIMITED (SUPRA) THAT THE GOODWILL IS NOW ELIGIBLE FOR DEPRECIATION. RELEVANT PORTION FROM THE SAID SUPREME COURT JUDGMENT READS AS UNDER: 6 ITA NO. 397/BANG/2017 TAXPAYER HAD ACQUIRED A CAPITAL ASSET IN THE FORM OF GOODWILL PURSUANT TO AMALGAMATION. FURTHER, THE SC IN A BRIEF ORDER OBSERVED THAT THE WORDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 TO SECTION 32 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE . THE PRINCIPLE OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRETING THE SAID EXP RESSION WHICH FINDS PLACE IN EXPLANATION (B). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 8. CONSIDERING THE ABOVE SETTLED POSITION, THE ISSUE OF ALLOWABILITY OF DEPRECIATION O N GOODWILL SHOULD BE DECIDED IN FAVOUR OF THE ASSESSEE. AS SUCH, REVENUE HAS NOT BOUGHT ANY CONTRARY MATERIAL TO SUGGEST THAT THE CLAIM OF DEPRECIATION ON GOODWILL IS NOT GENUINE AND THE SAME IS NOT ELIGIBLE FOR DEPRECIATION. ACCORDINGLY GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. GROUND NOS. 2, 3A, 3B AND 4 NEED NO SPECIFIC ADJUDICATION AS THEY WERE ALREADY ADJUDICATED AND DECIDED BY THE TRIBUNAL IN THE FIRST ROUND VIDE ITS ORDER DATED 25TH MAY, 2012 (SUPRA). WE RESPECTFULLY FOLLOW THE CO - ORDINATE BENCH DECISION OF MUMBAI WHERE FACTS ARE SIMILAR TO THE PRESENT CASE AND SET ASIDE THE ORDER OF CIT (APPEALS) AND DI RECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF DEPRECIATION ON GOODWILL AND WE ORDER ACCORDINGLY. 6. IN THE RESUL T, THE ASSESSEE'S APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 R D JAN., 2020. S D / - S D / - ( B.R. B ASKARAN ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 0 3 .01.2020. *REDDY GP 7 ITA NO. 397/BANG/2017 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANGALORE