DCIT, New Delhi V. M/s GLF Lifestyle Pvt. Ltd., New Delhi

ITA 4556/DEL/2016

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 6718 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 25-08-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Scheme of amalgamation
• Section: 32; 10; 143(3); 192; 64; 43; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI “C” BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI G.S.PANNU, PRESIDENT & SHRI KUL BHARAT, JUDICIAL MEMBER ITA No.4556/Del/2016 [Assessment Year : 2012-13] DCIT, Circle-10(1), C.R.Building, New Delhi-110002. vs GLF Lifestyle Pvt.Ltd., Flat No.3A/1, Taj Apartment, Rao Tula Ram Marg, New Delhi-110002. PAN-AAECG3087E APPELLANT RESPONDENT Appellant by Shri Ved Jain, Adv. Respondent by Shri Umesh Takyar, Sr.DR Date of Hearing 03.11.2021 Date of Pronouncement 09.12.2021 ORDER PER KUL BHARAT, JM : The present appeal filed by the Revenue for the assessment year 2012-13 is directed against the order of Ld. CIT(A)-4, New Delhi dated 09.06.2016. The Revenue has raised following grounds of appeal:- 1. “Whether on the facts and circumstances of the case & in law, the ld.CIT(A) erred in deleting the addition of Rs.3,01,12,211/- on account of depreciation of goodwill as eligible for depreciation u/s 32(1)(ii) of the I.T.Act, 1961. 2. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing.” 2. The only effective ground in this appeal is against the deleting the addition of Rs.3,01,12,211/- on account of depreciation of goodwill. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 2 3. Facts giving rise to the present appeal are that the assessee filed its return of income declaring a loss of Rs.2,57,02,758/- on 25.09.2012. The case was selected for scrutiny assessment and the assessment was framed by the Assessing Officer vide order dated 19.03.2015 u/s 143(3) of the Income Tax Act, 1961 (“the Act”). The Assessing Officer while framing the assessment observed that during the year under consideration, the assessee company stated to have purchased Samsaara Business from Genesis Colors Pvt.Ltd. (“GCPL”) and the value of net assets acquired was stated to be Rs.12.96 crores against which the assessee company paid Rs.25 crores and the balance amount was stated to be “GOODWILL”. The assessee company was issued a show cause as to why depreciation claimed on Goodwill at 25% of Rs.12.04 crores be not disallowed as depreciation, was not allowable on Goodwill. In response thereto, the assessee filed its reply. However, the reply of the assessee was not found acceptable by the Assessing Officer and he made disallowance of Rs.3,01,12,211/- on account of disallowance of depreciation on Goodwill and hence, added the same. 4. Aggrieved against this, the assessee preferred appeal before Ld.CIT(A) who after considering the submissions of the assessee and material available on record, allowed the appeal. 5 Now, the Revenue is in appeal before this Tribunal. 6. Ld. Sr. DR submitted that Ld.CIT(A) was not justified in deleting the addition. he strongly supported the order of the AO. He submitted case laws as relied by Ld.CIT(A) are not applicable on the facts of the present case. He submitted that as per the term of Agreement, M/s. GCPL had not given its brand name to the assessee company. Further, the Agreement did not transfer any ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 3 commercial knowledge or technical knowhow so that the assessee could claim same as business or commercial rights of similar nature. He submitted that even as per the definition of ‘asset’, ‘goodwill’ would not qualify as a business asset therefore, no depreciation is allowed. He placed reliance on the decision of the Co- ordinate Bench of this Tribunal rendered in the case of United Breweries Ltd. vs Addl.CIT in ITA Nos.722, 801 & 1065/Bang/2014 order dated 30.09.2016. 7. Ld. Counsel for the assessee opposed these submissions and reiterated the submissions as made in the written synopsis. For ready-reference, the contents of the synopsis are reproduced hereunder:- • In this regard, it is submitted that the consideration paid by the assessee over and above the net assets of 'Samsaara' business of Genesis Colors Pvt. Ltd. (GCPL) taken over by the assessee was in fact goodwill which is in the form of commercial and business rights and depreciation is allowable on the said differential as held by Hon'ble Supreme Court in the case of CIT v. Smifs Securities Limited (2012) 348 ITR 302 (SC). • The Hon'ble Supreme Court elaborately discussed Explanation 3 to Section 32(1) of the 1961 Act in the case of CIT v. Smifs Securities Limited(supra), wherein Hon'ble Supreme Court held as under: "2. It was further explained that excess consideration paid by the assessee over the value of net assets acquired of YSN Shares and Securities Private Limited [Amalgamating Company] should be considered as goodwill arising on amalgamation. It was claimed that the extra consideration was paid towards the reputation which the Amalgamating Company was enjoying in order to retain its existing clientele. 3. 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', for short]. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 4 We quote here in below Explanation 3 to Section 32(1) of the Act: "Explanation 3. -- For the purposes of this sub-section, 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, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature. " 4. Explanation 3 states that the expression 'asset' shall 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 nature'. The principle of ejusdem generis would strictly apply while interpreting the said expression which finds place in Explanation 3(b). 5. In the circumstances, we are of the view that 'Goodwill' is an asset under Explanation 3(b) to Section 32(1) of the Act. 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 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 authorised 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. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 5 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 referred to hereinabove. 8. For the afore-stated reasons, we answer Question No.[b] also in favour of the assessee". • In support of his contention, Id. AO held that in the following cases, facts are different from the facts of the assessee thus, not applicable to assessee (Pg. 4 of AO Order): (i) CIT v. Smifs Securities Limited (2012) 348 ITR 302 (SC). Ld. AO observed that in the above case, there was amalgamation while in case of assessee, there is no amalgamation. In this regard, it is submitted that in this judgment, Hon'ble SC elaborately discussed Explanation 3 to Section 32(1) of the 1961 Act. It is also relevant to note that Smifs Securities Ltd. (supra) was a case where assets of company - YSN shares and Securities (P.) Ltd. were transferred to Smifs Securities Ltd. under a scheme of amalgamation. And, the excess consideration paid by the Assessee therein over the value of net assets of YSN Shares and Securities (P.) Ltd. acquired by the Assessee, was accounted as goodwill. Thus, it can be observed that it makes no difference in respect of valuation of goodwill whether takeover of business is by way of amalgamation or not. (ii) Hindustan Coco Cola Beverages Pvt. Ltd. [2011] 331 ITR 192 (Delhi High Court) Ld. AO observed that in the above case, payment for goodwill falls within the meaning of six criteria mentioned in the meaning of intangibles assets in Explanation 3 of Section 32(1) of the Act but in the ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 6 case of assessee no criteria mentioned in explanation have been fulfilled. In this regard, it is submitted that in this judgment, depreciation was claimed on goodwill by the assessee on account of payment made for the marketing and trading reputation, trade style and name, marketing and distribution, territorial know-how, including information or consumption patterns and habits of consumers in the territory and the difference between the consideration paid for business and value of tangible assets and HC upheld the order passed by ITAT wherein it has been held that the same is to be treated as valuable commercial asset similar to other intangibles mentioned in the definition of the block of assets and, hence, eligible to depreciation. They can be in the form of copyrights, patents, trademarks, goodwill, trade secrets, customer lists, marketing rights, franchises, etc. which either arise on acquisition or are internally generated. Ld. AO has not appreciated the fact that in the case of assessee, there is a transfer of business and payment has been made for acquisition of bundle of business and commercial rights which include purchase of 'Samsaara' Brand', employees, intellectual property rights, business records, trademarks as reflecting in clause 2.2 of business transfer agreement (PB Pg.59) (iii) Areva T & D India Ltd. v. DCIT [2012] 345 ITR 421 (Delhi High Court) Ld. AO observed that in the above case, payment has been over and above book value of net assets which recognised as goodwill. But in case of assessee, no business is purchased. In this regard, it is submitted that in this judgment, HC observed that intangible assets being Business claims; business information; business records; contracts; skilled employees; knowhow were invaluable and resulted in carrying on the transmission and distribution business by the assessee, without any interruption. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 7 Ld. AO has not appreciated the fact that assessee has purchased a reputed brand 'Samsaara' from Genesis Color Pvt. Ltd. In facts, the facts of this case is same as case of assessee. Relevant extract of the judgment is as under: "Payment had been made for acquisition of commercial rights on which depreciation is permissible. The Assessing Officer was further not justified in treating entries in the books of account as conclusive and in taking payment in dispute as consideration for acquisition of goodwill. It is now more of less settled that entries in books cannot be treated as conclusive and true nature of transaction has to be determined with reference to law. The learned ClT (A) in the impugned order examined the issue with reference to agreement and found that payment was made for acquisition of commercial rights. On facts and circumstances of the case, we do not find any error in the approach of the learned CIT (A). His action is hereby confirmed." 17. In view of the foregoing discussion, it is seen that the assessee in the present appeals had not claimed depreciation on "goodwill" but on the commercial rights acquired to sell products under the trade name and through the network created by the seller for sale in India. It is further observed that the AO was not correct in holding that payment was made for acquisition of "goodwill". Payment had, in fact, been made for acquisition of commercial rights on which depreciation is permissible. In the circumstances, these appeals are dismissed in favour of the assessee and against the Revenue". • It would also be necessary to consider the relevant terms of the slump sale agreement entered into between the transferor and the transferee on dated 23.09.2011. 1. PB Pg. 55- Purchase of business (B) The seller has agreed to sell and the purchaser has agreed to purchase the business and the undertaking as a going concern for the purchase price and on the terms and conditions set out in the agreement. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 8 2. PB Pg. 56- Definition of business 'Business' means and refer to the business of marketing and distribution of various Indian designer products, fabrics, clothing, apparel, footwear, leather goods, hand bags, and other personal accessories currently operated by the seller under the 'Samsaara' trademark together with all rights pertaining to such business, including but not limited to the intellectual property rights. 3. PB Pg. 59- Transfer of business include u without prejudice to the generality of the foregoing, the business shall specifically include the following (the "Undertaking") (i) the business assets (ii) the business contracts (iii) the business liabilities (iv) the business properties (v) the employees (vi) Intellectual Property Rights (vii) All records 4. PB Pg. 59- Consideration " the purchaser shall pay to the seller a Lumpsum consideration of Rs. 25,00,00,000/- (Rupees twenty five crores only) as the purchase price for the business .. " Thus, it is clear from the above terms of agreement that running business 'Samsaara' of transferor was acquired by the transferred (i.e. Assessee) for a Lumpsum consideration of Rs. 25 Crores . • Book value of net tangible assets acquired in the books of transferor and transferee are same . PB Pg. 123 & 91 The book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance sheet of the transferor i.e. Genesis Color Pvt. Ltd. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 9 (GCPL) as on the date of transfer as Rs.12.96 Crores. GCPL has also paid tax on capital gain arising from slump sale of business. (PB Pg. 91) PB Pg. 43 & Pg. 123 The assets and liabilities transferred were recorded in the books of transferee (assessee) at the same value as appeared in the books of the transferor (GCPL). The balance payment of Rs.12.04 Crores over and above the book value of net tangible assets, was allocated by the transferee towards acquisition of bundle of business and commercial rights, clearly defined in the slump sale agreement, compendiously termed as “goodwill” in the books of account, which comprised, inter alia, the following:- (i) the business assets (ii) the business contracts (iii) the business liabilities (iv) the business properties (v) the employees (vi) Intellectual Property Rights (vii) All records Your honour will appreciate the fact that AO accepted the allocation of the slump consideration of Rs.12.04 Crores paid by the transferee, between tangible assets and intangible assets (described as goodwill) acquired as part of the running business. The AO, however, held that depreciation in terms of Section 32(1) (ii) of the Act was not, in law, available on goodwill. Reliance in this regard is placed on the following judgements: 1. CIT v. Intertek India Pvt. Ltd. in ITA No. 104/2016 dated 03.02.2016- Delhi High Court 3. The question urged by the Revenue as to whether depreciation can be claimed on goodwill is answered in the affirmative i. e. against the Revenue and in favour of the Assessee by the decision of the Supreme Court in CIT v. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 10 Smifs Securities Ltd. [2012J 348 ITR 302 (SC). No substantial question of law arises. The appeal is dismissed. 2. CIT v. Bharti Teletech Ltd. in ITA No. 496/2014 dated 15.04.2015- Delhi High Court .... In the facts of the present case, a reading of the agreement between STL and the assessee clarifies that a specific amount, i.e., Rs. 9 Crores was paid by the assessee to the transferor who owned commercial rights towards the network and the facilities. The consideration was a specific value but for which the network would not have been otherwise transferred. In that sense, it constituted business or commercial rights which were similar to the enumerated intangible assets. In so concluding, however, this Court does not lay down the general or particular principle that every such claim has to be necessarily allowed as was apparently understood by the ITAT. The circumstance that the declaration of law in Smifs Securities (supra) envisions inclusion of goodwill as an asset and, therefore, entitled to depreciation, in other words does not necessarily mean that in every case the goodwill claim has to be allowed. In the present case, though termed as goodwill, what was actually parted with by STL was a commercial right, i.e., exclusivity to the network which would not have been otherwise available but for the terms of the arrangement. So viewed, this Court is satisfied that the conclusions arrived at by the CIT (A) and the ITA T cannot be faulted. No substantial question of law arises; the appeal is consequently dismissed. 3. DCIT v. GEA Process Engineering India Pvt. Ltd. in ITA No.4154/Mum/2015-ITAT Mumbai We have observed that the assessee while acquiring Food and Pharma division of L& T vide agreement dated 26.05.2005 had paid consideration in excess of net asset value of the said divisions of L& T as on the date of takeover and consequently, the excess was reflected as Goodwill in the books of accounts of the assessee under the head 'Intangibles' and we are of the considered view that the assessee will be entitled for claiming depreciation on the said excess consideration being Goodwill as the same being 'any other business or commercial rights of similar nature' as defined ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 11 in Explanation 3 to Section 32(1) of the 1961 Act, keeping in view ratio of decision of Hon'ble Supreme Court in the case of CIT v. Smifs Securities Limited(supra). This disposes of ground no. 1 to 4 of the assessee's appeal. We order accordingly. Further, ITAT Delhi Special Bench in the case of CLC & Sons Pvt. Ltd. in ITA No. 1976/Del/2006 dated 19.07.2018 ruled that goodwill qualifies for depreciation u/s. 32, follows SC ruling in Smifs Securities Ltd. wherein it had ruled that goodwill falls under the expression 'or any other business or commercial rights of similar nature' appearing u/s 32(1). The facts of the case was that during relevant AY 2001-02, assessee-company took over all the assets and liabilities of a partnership firm, which inter-alia included goodwill valued at Rs. 10cr. ITAT reject revenue's stand that since goodwill of a business cannot be transferred separately de hors the transfer of business, it cannot be included in the expression 'any other business or commercial rights of similar nature' used in the provision to explain the unspecified intangible assets. ITAT held that issue is no more res integra in view of the SC ruling. (Para 7 at Pg. 135-136- Case law PB) Further reliance in this regard is also placed on the following judgements:- 1. ACIT v.Caryair Air System Components Ltd. in ITA No.147/Del/2012 dated 06.01.2016-ITAT Delhi 2. DCIT v. Nitrex Chemicals India ltd. in ITA No.3388/Dell200S dated 03.08.2015 - ITAT Delhi 3. Pro CIT V. Nitrex Chemicals India ltd. in ITA NO.247/2016 dated 23.08.2016- Delhi High Court 4. ACIT V. M/s V.F. Brands India Pvt. ltd. in ITA No. 42/Bang/2017 dated 28.06.2019- ITA T Bangalore 5. DCIT V. GEA Process Engineering India Pvt. ltd. in ITA No. 4154/Mum/2015 dated 03.01.2019-ITAT Mumbai • Therefore, in view of the ratio laid down by above judicial pronouncements and fact that depreciation is allowable on goodwill, addition made by Ld. AO cannot be sustained." ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 12 8. Ld.Sr.DR reiterated the written submissions filed by the assessee which are reproduced hereunder for ready-reference:- “In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to disallowance of depreciation on goodwill. 2. Decision of Hon'ble Supreme Court in Smiff Securities is not applicable in the present case because before Hon'ble Supreme Court the only issue involved was that whether goodwill is a depreciable asset. However, in the present case AO has questioned existence and quantum of goodwill as well. 3. Reliance placed on ITAT Benglore Limited Breweries Ltd. Vs. assesse (30 September, 2019) ITA NO. 722, 801 & 1065/Bang/2014 ITAT held that. However the assessing Officer has proceeded to hold the value of the goodwill as shown by the assessee is not justified. It is pertinent to note that once the claim of depreciation is restricted under the 5 th proviso to section 32(1)(ii) then the calculation issue become irrelevant. The CIT(Appeals) has also concurred with the view of the Assessing Officer ITA Nos. 722,801, 1065 & 1066/Bang/2014 regarding the applicability of the 5th proviso to section 32(1) of the Act in Para 5.4 as under: "5.4. It is also highlighted both in the assessment order and remand report that no depreciation on goodwill was claimed by KBDL before amalgamation. Therefore, as per the 5th proviso to Section 32(1)(ii), the appellant is not entitled to depreciation. This is a valid and relevant argument and appellant has not offered any rebuttal to this contention of the AO." It is not the case of the assessee that the subsidiary has claimed any depreciation of goodwill. Therefore by virtue of 5th proviso to section 32(1), the depreciation on the hands of the assessee is allowable only to the extent if such succession has not taken place. Therefore the assessee being amalgamated company cannot claim or be allowed depreciation on the assets acquired in the scheme of amalgamation more than the depreciation is allowable to the amalgamating company. As regards the decision of Hon'ble Supreme Court in the case of CIT Vs. Smiff Securities Ltd. (2012) 348 ITR 302, ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 13 the said ruling of the Hon'ble Supreme Court is only on the point whether the goodwill falls in the category of intangible assets or any other business or commercial rights of similar nature as per the provisions of section 32(1) of the Act. Therefore there is no quarrel on the issue that goodwill is eligible for depreciation. However the said ITA Nos. 722,801, 1065 & 1066/Bang/2014 judgment would not over-ride the provisions of 5th provision to Section 32(1) of the Act which restricts the claim in the cases specified thereunder. The consideration paid by the assessee for acquiring the shareholding of the subsidiary in the earlier years is not relevant for the issue of depreciation on the assets taken under amalgamation and for the purpose of 5th proviso to Section 32(1) of the Act. Accordingly, in view of the above facts and circumstances of the case as well as the above discussion, we hold that the claim of depreciation in the hands of the assessee is subjected to the 5th provision to section 32(1) of the Act. Accordingly, this issue is decided against the assessee. In the present case ITAT has also discussed the case of CIT vs. Smiff Securities (2012) 348 ITR 302. 4. In the case of CIT Vs Bharti Telecom, ITA NO. 496/2014 dated 15.04.2015, Hon'ble Court has already given disclaimer that this court does not lay down the general or particular principle that every such claim has to be necessarily allowed as was apparently understood by the ITAT. The relevant partition of the order of Hon'ble Court is as follows:- “From the above discussion, it is apparent that the question as to whether the claim for depreciation confirms to one of the other description under Section 32, especially Explanation 3 has to be examined with reference to what is put forward by the assessee in the given facts of each case. The structure of the definition, or rather expanded definition, which by Explanation 3 spell out what are intangible assets (know-how, patents, copyrights, trademarks, licences, franchises etc.), being of a peculiar nature, the claim which the Court would necessarily have to consider is whether the item claimed to be ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 14 eligible for depreciation confirms to «other business or commercial rights of similar nature". In the facts of the present case, a reading of the agreement between STL and the assessee clarifies that a specific amount i. e. Rs. 9 Crores was paid by the assessee to the transferor who owned commercial rights towards the network and the facilities. The consideration was a specific value but for which the network would to have been otherwise transferred. In that sense, it constituted business or commercial rights which were similar to the enumerated intangible assets. In so concluding, however, this Court does not lay down the general or particular principle that every such claim has to be necessarily allowed as was apparently understood by the ITAT. The circumstance that the declaration of law in Smiffs Securities (Supra) envisions inclusion of goodwill as an asset and, therefore, entitled to depreciation, in other words does not necessarily mean that in every case the goodwill claim has to be allowed. In the present case, though termed as goodwill, what was actually parted with by STL was a commercial right, i.e. exclusivity to the network which would not have been otherwise available but for the terms of the arrangement. So viewed, this Court is satisfied that the conclusions arrived at by the CIT (A) and the ITAT cannot be faulted. No substantial question of law arises; the appeal is consequently dismissed." 8. We have heard the rival contentions and perused the material available on record. The solitary issue that arises for consideration is whether the Ld.CIT(A) is justified in deleting the addition of Rs.3,01,12,211/- as made by the AO on account of disallowance of claim of depreciation of goodwill. For the sake of effective adjudication, the relevant contents of the impugned order are reproduced as under:- 4. “The ground no. 1 is general in nature. The ground no 2 is regarding the disallowance of depreciation of Rs 3,01,12,211/- on goodwill acquired out of slump sale business. The assessee vide a slump sale agreement acquired, as ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 15 a going concern, the Samsara business of the transferor-company. The book value of the net tangible assets (assets minus liabilities) acquired was recorded in the balance sheet of the assessee as on the date of transfer as Rs. 12.96 crores. The said assets and liabilities were recorded in the books of transferee at the same value as appeared in the books of the transferor. The balance payment of Rs.12.04 crores over and above the book value of net tangible assets, was allocated by assessee towards acquisition of bundle of business and commercial rights, collectively termed as 'goodwill' in the book of account, which comprised, inter alia, Samsaara brand, business contracts, employees, intellectual property rights, business records, trademarks, copyrights etc. as reflecting in clause 2.2 of business transfer agreement at page 59 of paper book. The assessee-company while filing its return claimed depreciation under section 32(1)(ii) with respect to the aforesaid amount as being a price paid for acquisition of above mentioned intangible assets. The Assessing Officer disallowed the depreciation on 'goodwill' as claimed in the return. The Assessing Officer disallowed the claim of the assessee-company on grounds that depreciation under section 32(2)(ii) is not available on goodwill. The assessee contended that the assessee has paid excess consideration over and above the value of net assets for the Samsaara brand, business contracts, employees, intellectual property rights, business records, trademarks, copyrights etc. as reflected in clause 2.2 of business transfer agreement at page 59 of paper book. There is no doubt that goodwill is an eligible intangible asset which is eligible for depreciation u/s 32 of the Income tax Act as held in the case of Khushal Khemgar Shah v. Mrs. Khorshed Banu Dadiba Boatwalla AIR 1970 SC 1147. The issue involved is that whether intangible assets, viz., business claims, business information, business records, contracts, employees and know-how acquired by assessee under slump sale agreement are in nature of 'business or commercial rights of similar nature/goodwill' or not? From a perusal of the agreement dated 01.10.2011, it is seen that the total consideration for sale was Rs. 25 crore for tangible and intangible ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 16 assets. An amount of Rs. 12.04 lakhs which is reflected in the balance-sheet as goodwill is for acquisition of a bundle of business or. commercial rights, collectively, termed as goodwill in the books of account, which comprised inter alia the Samsaara brand, business contracts, employees, intellectual property rights, business records, trademarks, copyrights etc. In the circumstances, it is seen that intangible assets, viz. trademarks, copy rights, contracts, employees, are all assets that directly help in the carrying on the business by the assessee. In the absence of the aforesaid intangible assets, the assessee would have had to commence business from scratch and go through the gestation period, whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business. The assessee has relied upon various case laws wherein, intangible assets acquired out of slump sale are treated as goodwill. In the judgement delivered by Hon'ble Supreme Court in ClT v. Smifs Securities ltd (2012) 348 ITR 302 (SC) excess consideration paid by the assessee over the value of net assets acquired has been considered as goodwill. The assessee also relied upon the following decisions of jurisdictional High Court/ Tribunal wherein, the balance payment over and above the book value of net tangible assets, was allocated by the assessee towards acquisition of bundle of business and commercial rights, collectively termed as 'goodwill' in the books of account, which comprised, inter alia, the following: (i) business claims, (ii) business information, (iii) business records, (iv) contracts, (v) skilled employees, (vi) knowhow, and depreciation was allowed: a) Areva T & D India Ltd v DClT (2012) 345 ITR 421 (Del) b) Triune Energy Services (P.) Ltd. vs DClT [2016] 65 taxmann.com 288 (Delhi)/[2016] 237 Taxman 230 (Delhi) c) Cyber India Online Ltd .v. Assistant Commissioner of Income tax [2014] 64 SOT 1 (Delhi Trib.)(URO) d) Minda Acoustic Ltd. v .Additional Commissioner of Income tax [2015] 69 SOT 162 (Delhi Trib.) ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 17 e} ThyssenKrupp Elevator (India) (P.) Ltd. vs ACIT [2015]167 TTJ 131 (Delhi Trib.) I have gone through the assessment order and submissions of the assessee both on facts. and law. Hon'ble Supreme Court has held that as per Explanation 3 of section, the expression 'asset' shall mean an intangible asset, being know how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature. A reading of the words 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 nature. In my opinion the intangible assets acquired for Rs 12.04 crores under slump sale agreement are in the nature of "business or commercial rights of similar nature" specified in Section 32(1)(ii) of the Act for the reasons stated herein above and were accordingly eligible for depreciation. Therefore, depreciation is to be allowed on goodwill and the addition of Rs.3,01,12,211/- is hereby deleted.” 9. The finding of Ld. CIT(A) is well reasoned and is based on binding precedents. We therefore, do not find any merit into the contention of Ld. Sr. DR that the depreciation is not available on the goodwill. Moreover, this controversy has been set at rest now by the Judgement of Hon’ble Supreme Court rendered in the case of CIT vs Smifs Securities Ltd. [2012] 348 ITR 302 (SC). Looking to the facts of the present case, we are of the considered view that Ld.CIT(A) has rightly applied the ratio laid down by the Hon’ble Supreme Court in the case of Smifs Securities Ltd. (supra). The AO simply disallowed the claim by holding that depreciation was not allowable on the goodwill without bringing any positive material on record suggesting that the facts of the case did not warrant allowance of depreciation on goodwill. We therefore, do not see any reason to interfere in the finding of Ld.CIT(A), the same is hereby affirmed. The ground raised by the Revenue is dismissed. ITA No.4556/Del/2016 [Assessment Year : 2012-13] Page | 18 10. In the result, the appeal of the Revenue is dismissed. Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 9 th December, 2021. Sd/- Sd/- (G.S.PANNU) (KUL BHARAT) PRESIDENT JUDICIAL MEMBER * Amit Kumar/R.N * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI