ACIT CIR 4(2), MUMBAI V. NICHE BROKERAGE P. LTD, MUMBAI

ITA 4851/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9279 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 05-11-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAVIN KUMAR
• Keywords: Capital asset; Depreciation; Deemed dividend; Revenue expenditure; Capital expenditure
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I : MUMBAI BEFORE : SHRI D.K.AGRAWAL, JUDICIAL MEMBER AND SHRI N.K.BILLAIYA, ACCOUNTANT MEMBER ITA.NO.2948/MUM/2010 ASSESSMENT YEAR 2006-2007 M/S. INDIA CAPITAL MARKETS P. LTD. (FORMERLY KNOWN AS NICHE BROKERAGE P. LTD.), INDIA CAPITAL HOUSE, OFF.DATTAPADA ROAD, DATTAPADA, BORIVALI (E), MUMBAI 400 066 PAN AABCN0802B VS. DCIT, RANGE 4 (2) MUMBAI. (APPELLANT) (RESPONDENT) ITA.NO.4851/MUM/2010 ASSESSMENT YEAR 2006-2007 ACIT, CIRCLE 4 (2) MUMBAI. VS. M/S. NICHE BROKERAGE P. LTD. 3/F-2, COURT CHAMBERS, 35, NEW MARINE LINES MUMBAI 400 020 PAN AABCN0802B (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI VIJAY MEHTA (AR) FOR REVENUE : SHRI PRAVIN KUMAR (DR) DATE OF HEARING : 05-11-2012 DATE OF PRONOUNCEMENT : 12-12-2012 ORDER PER SHRI N.K.BILLAIYA, A.M. THESE CROSS-APPEALS BY THE ASSESSEE AND THE REVENU E ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE CIT(A) DATED 23- 3-2010 PERTAINING TO THE ASSESSMENT YEAR 2006-2007. AS BOTH THESE APPEALS AR E DIRECTED AGAINST THE VERY SAME ORDER, BOTH WERE HEARD TOGETHER AND DISPO SED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2 2. ITA.NO.2948/MUM/2010 : THE ASSESSEE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF THE CIT(A) BY RAISING THREE GROUNDS OF APPEAL. AT THE VERY OUTSET, COUNSEL FOR THE ASSESSEE STATED THAT HE IS NOT PRES SING GROUND NO.3. ACCORDINGLY, GROUND NO.3 IS DISMISSED. 3. GROUND NO.1 RELATES TO THE DISALLOWANCE OF DEPRE CIATION ON INTANGIBLE ASSET AMOUNTING TO RS.62,50,000/-. GROUND NO.2 IS A N ALTERNATIVE PLEA TO GROUND NO.1 BY WHICH THE ASSESSEE CLAIMS THAT IF NO DEPRECIATION IS ALLOWED ON CAPITAL EXPENDITURE INCURRED ON INTANGIBLE ASSET, T HEN THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. 4. FACTS GIVING RISE TO THE GRIEVANCE RAISED BY GRO UND NO.1 SHOW THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSES SING OFFICER NOTICED THAT THE ASSESSEE IS A SHARE BROKER AND THE MAIN SOURCE OF INCOME IS GENERATED THROUGH BROKERAGE. THE ASSESSING OFFICER FURTHER OB SERVED THAT DURING THE YEAR THE ASSESSEE HAS PURCHASED ENTIRE CLIENTELE BUSINES S OF M/S. ASHMAVIR FINANCIAL CONSULTANTS PVT. LTD. (HEREINAFTER CALLED AS M/S.AFC) BY ASSIGNING ALL CLIENTS TO THE APPELLANT COMPANY FOR A CONSIDER ATION OF RS.2.50 CRORES . THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS BOO KED THESE EXPENSES AS PURCHASE OF GOODWILL AND HAS CLAIMED 25% OF DEPRECI ATION AMOUNTING TO RS.62,50,000/- THEREON. 5. THE ASSESSING OFFICER SOUGHT EXPLANATION FROM TH E ASSESSEE TO JUSTIFY ITS CLAIM ON DEPRECIATION OF SUCH PURCHASE OF CLIENTELE BUSINESS. THE ASSESSEE FILED A DETAILED REPLY. IN ITS REPLY, THE ASSESSEE ALSO T OOK AN ALTERNATIVE PLEA THAT THE PAYMENT IF NOT CONSIDERED ELIGIBLE FOR DEPRECIATION THEN, THE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. THE SUBMISSIONS AND THE EXPLANATIONS OF THE ASSESSEE DID NOT FIND FAVOUR WITH THE ASSESSING OFF ICER WHO EXAMINED THE SUBMISSIONS IN THE LIGHT OF THE PROVISIONS OF SECTI ON 32 OF THE ACT. AFTER CONSIDERING THE PROVISIONS OF SECTION 32, THE ASSES SING OFFICER WAS OF THE OPINION THAT IN THE SAID PROVISION IT IS APPARENTLY CLEAR THAT GOODWILL AS SUCH DOES NOT FIND ANY REFERENCE. THE ASSESSING OFFICER WENT ON TO DISCUSS THE 3 AGREEMENT VIDE DEED OF ASSIGNMENT OF BUSINESS, SALE OF GOODWILL AND MASTER SERVICES AGREEMENT ENTERED INTO BETWEEN THE ASSESSE E AND M/S. AFC THE ASSESSING OFFICER OBSERVED THAT DUE TO REGULATORY C HANGES BROUGHT IN BY THE STOCK EXCHANGE BY WHICH NO SUB-BROKER WAS ALLOWED T O ISSUE THE BILLS AND ACCORDING TO THE NEW SCHEME, IT IS ONLY THE MAIN BR OKER WHO CAN CHARGE BROKERAGE WHICH MEANS THAT DUE TO THIS CHANGE, M/S. AFC WHO HITHERTO WAS A SUB-BROKER, COULD NOT INDEPENDENTLY DO THE BUSINESS . FURTHER, M/S.AFC WAS NOT A MEMBER OF THE STOCK EXCHANGE AND THEREFORE, I T COULD NOT HAVE SOLICITED INDEPENDENT BUSINESS. AS SUCH, THE QUESTION OF TRAN SFER OF ANY GOOD WILL DOES NOT EXIST. THE ASSESSING OFFICER POINTED OUT THAT M /S.AFC WAS THE EXCLUSIVE SUB-BROKER OF THE ASSESSEE VIDE AGREEMENT DATED 13. 10.2000. DUE TO REGULATORY CHANGES BROUGHT BY SEBI VIDE ITS CIRCULAR DATED 26 TH AUGUST, 2004 M/S.AFC COULD NOT CARRY ON THE BUSINESS OF SHARE BROKER FOR THE ASSESSEE INDEPENDENTLY AND THEREFORE, THE AGREEMENT BETWEEN M/S.AFC AND TH E ASSESSEE DATED 13.10.2000 WAS AUTOMATICALLY TERMINATED. 6. IT IS THE SAY OF THE ASSESSEE THAT M/S.AFC HAD NO OTHER OPTION BUT TO LINK ITS BUSINESS WITH SOME OTHER MEMBER BROKER AND RE-NEGOTIATE TERMS AND CONDITIONS FOR FURTHER CONDUCT OF THE BUSINESS IN T HE SAME LINE, WHILE ON THE OTHER HAND, ASSESSEE SAW THIS AS AN OPPORTUNITY FOR DEVELOPMENT AND EXPANSION OF ITS BUSINESS. THEREFORE, THE ASSESSEE PAID RS.2.5 CRORES TO ACQUIRE THE INDEPENDENT CLIENTELE BUSINESS OF M/S.AFC AND A LSO ALLOTTED 7.25% SHARE IN THE COMPANY. THIS ARRANGEMENT PROMPTED THE ASSES SING OFFICER TO CONCLUDE THAT ACQUISITION OF BUSINESS OF ANOTHER ENTITY IS N OT ACQUISITION OF GOODWILL. 7. COMING BACK ONCE AGAIN TO THE PROVISIONS OF SECT ION 32 (1) (II) I.E., CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS, THE ASSESSING OFFICER WAS OF THE OPINION THAT THE CASE OF THE ASSESSEE DOES NOT FALL IN ANY OF THE CATEGORY TO MAKE IT ELIGIBLE FOR DEPRECIATION UNDER THIS CLAUSE. THE AS SESSING OFFICER WAS OF THE OPINION THAT DEPRECIATION IS ALLOWABLE ONLY TO ASSE TS WHICH ARE KEPT DEPRECIATING OVER A PERIOD OF TIME DUE TO DAMAGE, W EAR AND TEAR AND OBSOLESCENCE WHEREAS, CLIENT DO NOT DEPRECIATE AND MOREOVER, THEY ARE TANGIBLE. 4 THEREFORE, DO NOT FULFILL THE CONDITIONS OF INTANGI BILITY. THE ASSESSING OFFICER CONCLUDED THAT ANY CAPITAL ASSET TANGIBLE OR INTANG IBLE HAS TO BE PUT TO USE. THE COMMERCIAL RIGHT THAT THE ASSESSEE COMPANY HAS CLAIMED TO HAVE PURCHASED HAS NOT BEEN PUT TO USE DURING THE YEAR A ND ACCORDINGLY, DISALLOWED THE CLAIM OF DEPRECIATION ON ACCOUNT OF GOODWILL AT RS.62,50,000/-. 8. THE ASSESSEE AGITATED THIS MATTER BEFORE THE CIT (A) AND REITERATED THAT IT HAS PURCHASED AN INTANGIBLE ASSET IN THE FORM OF CL IENTELE BUSINESS OF M/S.AFC AND THEREFORE, ELIGIBLE FOR DEPRECIATION UNDER SECT ION 32 (1) (II) OF THE ACT. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE CIT(A) W AS OF THE VIEW THAT THE DISALLOWANCE OF DEPRECIATION OF RS.62,50,000/- IS F OUND TO BE CORRECT FOR THE FOLLOWING REASONS : (A) THE PAYMENT OF RS. 2.50 CRORES WAS NOT FOR GOOD WILL BUT FOR PURCHASE OF CLIENTELE BUSINESS OF M/S.AFC. (B) THE NAME AND FAME OF OLD PLACE OF BUSINESS GOO DWILL AND BUSINESS ITSELF OF M/S.AFC GOT EXTINGUISHED BY ASSIGNMENT OF BUSINESS TO THE ASSESSEE. 8.1. THE CIT(A) FURTHER OBSERVED THAT IN THE PRESEN T CASE, THE ASSESSEE HAS NOT PAID THE SUM OF RS.2.50 CRORES FOR THE GOODWILL OF M/S.AFC. THE SUM OF RS.2.50 CRORES HAS BEEN PAID FOR EXTINGUISHMENT OF M/S.AFC AND FOR USING THE SERVICES OF ITS PROMOTER-DIRECTOR MR. MAHAVEER LALC HAND MEHTA AS AN EMPLOYEE OF THE COMPANY BY VIRTUE OF MASTER-SERVICES AGREEME NT DATED 1-9-2005. THE CIT(A) FURTHER HELD THAT IT IS NOT CLEAR AT ALL AS TO OUT OF RS.2.50 CRORES WHAT WAS THE AMOUNT PERTAINING TO ASSIGNMENT OF BUSINESS OR WHAT PART WAS FOR GOODWILL, WHAT IS BEING PAID FOR GOODWILL IS NOT ME NTIONED AT ALL IN THE DEED WITH M/S.AFC ITSELF HAS EXTINGUISHED THE QUESTION O F HAVING ITS GOODWILL AFTER THE AGREEMENT DATED 29 TH AUGUST, 2005 DOES NOT ARISE. THE REAL NATURE OF TRANSACTION IS THAT OF RS.2.50 CRORES HAS BEEN MADE FOR RETAIL CLIENTELE OF M/S.AFC NUMBERING 3709 AND TO ENSURE THAT THE BUSIN ESS OF M/S.AFC COMES TO AN END AND ITS PROMOTER-DIRECTOR WORKS FOR THE A PPELLANT COMPANY. THE 5 CIT(A), FINALLY CONCLUDED THAT THE PAYMENT IS NOT F OR GOODWILL AT ALL NOR IS THE PAYMENT FOR ANY COMMERCIAL RIGHT. THEREFORE, THE CL AIM OF DEPRECIATION ON THE CONSIDERATION OF RS.2.50 CRORES IS FOUND TO BE BASE LESS AND CONFIRMED THE DISALLOWANCE OF RS.62,50,000/-. 9. AGGRIEVED BY THE FINDINGS OF THE CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE US. THE COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT THE REVENUE AUTHORITIES HAVE MISUNDERSTOOD AND MISINTERPRETED T HE PROVISIONS OF SECTION 32(1)(II) OF THE ACT. THE ASSESSEE HAS VERY MUCH AC QUIRED AN INTANGIBLE ASSET FROM M/S.AFC BY PAYING THE CONSIDERATION OF RS.2.50 CRORES AND RIGHTLY CLAIMED DEPRECIATION @ 25% WHICH IS THE ALLOWABLE R ATE OF DEPRECIATION AS PER THE PROVISIONS OF THE ACT. IT IS INCORRECT ON THE P ART OF THE REVENUE AUTHORITIES TO STATE THAT NO GOODWILL HAS BEEN PURCHASED BY THE AS SESSEE. BY PAYING RS.2.50 CRORES, THE ASSESSEE HAS ACQUIRED A RIGHT TO DIRECT LY DEAL WITH 3709 CLIENTS OF M/S.AFC WHICH IN ITSELF IS A COMMERCIAL RIGHT ELIGI BLE FOR DEPRECIATION. 10. PER CONTRA, LEARNED D.R. RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES AND PLEADED THAT THE ASSESSEE HAS GROSSLY FAILED TO SUBSTANTIATE ITS CLAIM FOR DEPRECIATION. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO GONE THROUGH THE COPY OF THE DEED OF ASSIGNMENT OF BUSINESS, SALE OF GOODWILL AND MASTER SERVICES AGRE EMENT. BY VIRTUE OF CLAUSE (1) OF THE SAID DEED, IT IS PROVIDED AS UNDER (1) ASSIGNMENT AND CONSIDERATION : (A) THAT IN CONSIDERATION OF THE SUM OF RS.2,50,00, 000/- (RS. TWO CRORE AND FIFTY LACS ONLY) PAID BY THE ASSIGNEE TO THE ASSIGNOR-1 ON THE EXECUTION OF THESE PRESENTS, RECE IPT WHEREOF THE ASSIGNOR-1 DO HEREBY ADMIT, THE ASSIGNO R-1 AS BENEFICIAL OWNER, IRREVOCABLY ASSIGNS, CONVEYS, SEL LS, GRANTS AND TRANSFERS ONTO THE ASSIGNEE WITHOUT LIMITATION AND IN 6 PERPETUAL, ALL THE SAID RETAIL CLIENTELE OF THE ASS IGNOR-1 IN STOCK BROKING BUSINESS INCLUDING THE EXISTING BUSIN ESS ASSOCIATES (A LIST OF RETAIL CLIENTELE/BUSINESS ASS OCIATES IS ENCLOSED AS ANNEXURE-A), TOGETHER WITH THE GOODWILL ATTACHED THERETO WITH ALL THE RIGHTS AND BENEFITS B ELONGING THERETO TO HOLD THE SAME AND ALL THE SAID RETAIL CL IENTELE HEREBY ASSIGNED ON TO THE ASSIGNEE ABSOLUTELY; AS O N 1 ST SEPTEMBER, 2005. (B) THE ASSIGNOR-1 HEREBY COVENANTS WITH THE ASSIGN EE THAT HE HAS FULL RIGHT AND ABSOLUTE AUTHORITY TO ASSIGN THE SAID RETAIL CLIENTELE TOGETHER WITH THE GOODWILL ATTACHED THERE TO AND THAT HE HAS NOT ASSIGNED OR AGREED TO ASSIGN THE SA ME IN FAVOUR OF ANY OTHER PERSON OR CREATED ANY ENCUMBRAN CES THEREON AND THAT THE ASSIGNEE WILL BE ENTITLED TO U SE THE SAID RETAIL CLIENTELE TOGETHER WITH THE GOODWILL ATTACHE D THERETO OF THE ASSIGNOR-1 WITHOUT ANY OBJECTION AND OR INTERRU PTION BY THE ASSIGNOR-1 OR ANY PERSON CLAIMING UNDER HIM INC LUDING THAT OF THE ASSIGNOR-2 AND THAT THE ASSIGNORS WILL AT THE REQUEST AND COSTS OF THE ASSIGNEE AT ANY TIME EXECU TE ANY DOCUMENT AS MAY BE REQUIRED FOR BETTER AND MORE PER FECTLY ASSURING THE SAID ASSIGNMENT OF CLIENTELE AND THE G OODWILL ATTACHED THERETO UNTO THE ASSIGNEE. 12. IT IS NOT IN DISPUTE THAT BY VIRTUE OF THIS AGR EEMENT, M/S.AFC HAS TRANSFERRED ITS ENTIRE RETAIL CLIENTELE TO THE ASSE SSEE FOR A CONSIDERATION OF RS.2.50 CRORES. THE ONLY ISSUE TO BE DECIDED IS, WH ETHER THIS CONSTITUTES OR CREATES AN INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATI ON UNDER SECTION 32 (1) (II) OF THE ACT ? 7 LET US FIRST SEE THE PROVISIONS OF SECTION 32 (1) ( II) OF THE ACT. 32. DEPRECIATION.--(1) IN RESPECT OF DEPRECIATION O F-- (I) BUILDINGS, MACHINERY, PLANT OR FURNITURE BEING TANGIBLE ASSETS ; (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, L ICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIBLE ASSETS ACQUIRED ON OR AFTER THE 1ST DAY OF APRIL, 1998, OWNED, WHOLLY OR PARTLY, BY THE ASSESSEE AND USED F OR THE PURPOSES OF THE BUSINESS OR PROFESSION THE FOLLOWING DEDUCTIONS SHA LL BE ALLOWED-- (I) IN THE CASE OF ASSETS OF AN UNDERTAKING ENGAGE D IN GENERATION OR GENERATION AND DISTRIBUTION OF POWER, SUCH PERCENTA GE ON THE ACTUAL COST THEREOF TO THE ASSESSEE AS MAY BE PRESCRIBED. (II) IN THE CASE OF ANY BLOCK OF ASSETS, SUCH PERC ENTAGE ON THE WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED . 13. A PERUSAL OF THE ABOVE PROVISION SUGGESTS THAT CERTAIN INTANGIBLE ASSETS ON WHICH DEPRECIATION COULD BE CLAIMED ARE - KNOWHO W, PATENTS, COPY RIGHTS, TRADE MARKS, LICENSES, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THIS EXPRESSION ANY OTHER BUSINESS OR COM MERCIAL RIGHTS OF SIMILAR NATURE BY ITSELF WOULD MEAN TO INCLUDE ALL KINDS OF COMMER CIAL RIGHTS. THE LANGUAGE IN SECTION 32 (1) (II) CLEARLY INVITES THE APPLICATION OF THE RULE OF EJUSDEM GENERIS WHICH MEANS THAT WORDS OF A GENERAL NATURE FOLLOWING SPECIFIC AND PARTICULAR WORDS SHOULD BE C ONSTITUTE AS LIMITED TO THINGS WHICH ARE OF SAME NATURE AS THOSE SPECIFIED. THE SP ECIFIC WORDS IN SECTION 32 OF THE ACT REVEAL THE SIMILARITY IN THE SENSE THAT ALL THE INTANGIBLE ASSETS SPECIFIED ARE TOOLS OF THE TRADE WHICH FACILITATES THE ASSESS EE TO CARRY ON THE BUSINESS. THEREFORE . THE EXPRESSION , ANY OTHER BUSINESS O R COMMERCIAL RIGHTS OF SIMILAR NATURE WOULD INCLUDE SUCH RIGHTS WHICH CAN BE USE D AS A TOOL TO CARRY ON THE 8 BUSINESS. THIS VIEW FINDS SUPPORT FROM THE DECISION OF THE TRIBUNAL IN THE CASE OF SKYLINE CATERERS P LTD V/S ITO 306 ITR [AT] 369 MUMBAI. 14. IN THE LIGHT OF THESE OBSERVATIONS, IT CANNOT B E DENIED THAT BY GETTING A RIGHT OVER 3709 CLIENTS OF M/S. AFC , SUCH RIGHT I S USED AS A TOOL TO CARRY ON THE BUSINESS BY THE ASSESSEE. MERELY BECAUSE THE AS SESSEE SHOWED THE PAYMENT TO BE ON ACCOUNT OF GOODWILL IN THE BOOKS O F ACCOUNT, NO ADVERSE INFERENCE COULD BE DRAWN AGAINST THE ASSESSEE. 15. EVEN ASSUMING THAT THE PAYMENT HAS BEEN MADE FO R THE PURCHASE OF GOODWILL OF M/S. AFC IT HAS TO BE ACCEPTED THAT IN THIS LINE OF BUSINESS THE GOODWILL OF THE BROKER IS PARAMOUNT . BECAUSE OF CE RTAIN STRAY INCIDENCES WHICH HAVE TAKEN PLACE IN THE STOCK MARKET WHICH HAVE SHA KEN THE CONFIDENCE OF THE PUBLIC AT LARGE IN THE PAST, THE INVESTORS ALWAYS D EPEND UPON THE GOODWILL OF THE BROKER BECAUSE NO INVESTOR WOULD LIKE TO BURN H IS FINGERS BY THE UNSCRUPULOUS ACTIVITIES UNDERTAKEN BY CERTAIN FRAUD ULENT BROKER. M/S. AFC HAD A STRONG CLIENTELE BASE OF 3709 PERSONS WHICH I TSELF SHOW THAT M/S. AFC WAS HOLDING A STRONG REPUTE IN THE EYES OF ITS CLIE NTS. UNDOUBTEDLY, BY PURCHASE OF RIGHTS TO DO THE BUSINESS WITH THESE 37 09 CLIENTS THE ASSESSEE HAS ACTUALLY PURCHASED THE GOODWILL OF M/S. AFC. 16 LORD MACNAGHTEN MARK IN IRC VS. MULLER & CO. MA RGARINE LTD. (1901) AC 217 HL REMARKED THAT , ALTHOUGH GOODWILL WAS EASY TO DESCRIBE IT WAS - - DIFFICULT TO DEFINE. IN A PROGRESSING BUSINESS GOOD WILL TENDS TO SHOW PROGRESSIVE INCREASE AND IN A FAILING BUSINESS IT MAY BEGIN TO WANE. ITS VALUE MAY FLUCTUATE FROM ONE MOMENT TO ANOTHER DEPENDING ON CHANGES IN THE REPUTATION OF THE BUSINESS. IT IS EFFECTED BY EVERYTHING RELATING TO THE BUSINESS, THE PERSONALITY AND BUSINESS RECTITUDE OF THE OWNERS, THE NATURE AN D CHARACTER OF THE BUSINESS, ITS NAME AND REPUTATION, ITS LOCATION, IT S IMPACT ON THE CONTEMPORARY MARKET, THE PREVAILING SOCIO ECONOMIC ECOLOGY, OR INTRODUCTION TO OLD CUSTOMERS AND AGREED ABSENCE OF COMPETITION. 9 17. COMMERCIAL RIGHTS GAIN SIGNIFICANCE IN THE COMM ERCIAL WORLD AS THEY REPRESENT A PARTICULAR BENEFIT OR ADVANTAGE OR REPU TATION BUILT OVER A CERTAIN SPAN OF TIME AND THE CUSTOMER ASSOCIATE WITH SUCH ASSETS . 18. IT WOULD NOT BE OUT OF PLACE TO HIGHLIGHT THE VIEWS EXPRESSED BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF AREVA T & D INDIA LTD. VS. DCIT (2012) 345 ITR 421. IN THE PRESENT CASE, APPLYING THE PRINCIPLE OF EJU SDEM GENERIS, WHICH PROVIDES THAT WHERE THERE ARE GENERAL WORDS FOLLOWI NG PARTICULAR AND SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHA LL BE CONFINED TO THINGS OF THE SAME KIND, AS SPECIFIED FOR INTERPRE TING THE EXPRESSION 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN SECTION 32(1)(II) OF THE ACT. IT IS SEEN THAT SUCH RIGHTS NEED NOT ANSWER THE DESCRIPTION OF 'KNOW-HOW, PATENTS, TRADE MARKS, LI CENCES OR FRANCHISES' BUT MUST BE OF SIMILAR NATURE AS THE SPECIFIED ASS ETS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIB LE ASSETS REFERRED TO IN SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM 'B USINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFO RESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT F ROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS TH E WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADD ITIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND T O PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBL E ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE N EITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMST ANCES, THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTE D TO ONLY THE AFORESAID SIX CATEGORIES OF ASSETS, VIZ., KNOW-HOW, PATENTS, TRADE MARKS, COPYRIGHTS, LICENCES OR FRANCHISES. THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CAN BE OF THE SAME GENUS IN WHICH ALL THE AFORESAID SI X ASSETS FALL. ALL THE ABOVE FALL IN THE GENUS OF INTANGIBLE ASSETS THAT FORM PART OF THE TOOL OF TRADE OF AN ASSESSEE FACILITATING SMOOTH CARRYING ON OF THE BUSINESS. IN 10 THE CIRCUMSTANCES, IT IS OBSERVED THAT IN THE CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS ; BUSINES S INFORMATION ; BUSINESS RECORDS ; CONTRACTS ; EMPLOYEES ; AND KNOW-HOW, AR E ALL ASSETS, WHICH ARE INVALUABLE AND RESULT IN CARRYING ON THE TRANS MISSION AND DISTRIBUTION BUSINESS BY THE ASSESSEE, WHICH WAS H ITHERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUPTION. TH E AFORESAID INTANGIBLE ASSETS ARE, THEREFORE, COMPARABLE TO A LICENCE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRAN SFEROR. IN THE ABSENCE OF THE AFORESAID INTANGIBLE ASSETS, THE ASSESSEE WO ULD 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. THIS VIEW IS FORTIFIED BY THE RATIO OF THE DECISION OF THE SU PREME COURT IN TECHNO SHARES AND STOCKS LTD. [2010] 327 ITR 323 (SC) WHER EIN IT WAS HELD THAT INTANGIBLE ASSETS OWNED BY THE ASSESSEE AND USED FO R THE BUSINESS PURPOSE WHICH ENABLES THE ASSESSEE TO ACCESS THE MA RKET AND HAS AN ECONOMIC AND MONEY VALUE IS A 'LICENCE' OR 'AKIN TO A LICENCE' WHICH IS ONE OF THE ITEMS FALLING IN SECTION 32(1)(II) OF TH E ACT. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEME NT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILA R NATURE' SPECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION UNDER THAT SECTION. 19. THE I.T.A.T. MUMBAI G BENCH IN THE CASE OF DC IT VS. WEIZMAN FOREX LTD. IN ITA.NO.3571/MUM/2011 OBSERVED THAT THE DEFI NITION OF THE ASSET WHICH IS A SUBJECT MATTER OF THE TRANSFER CONSISTS OF ALL CONTRACT, LICENSES, FRANCHAISE, DISTRIBUTION NET WORK, CUSTOMER LISTS , MARKETING STRATEGIES AND SOFTWARE AND WHEN THE INTANGIBLE ASSET BEING COMMERCIAL/BUSINESS RIGHTS DIMINISHED IN VALUE OR PHYSICAL WEAR AND TEAR IS NOT AN ESSENTIAL CONDITION FOR ADMISSIBILITY FOR DEPRECIATION, IF THE ASSET IS USED AS A BUSINES S TOOL FOR EARNING INCOME. 11 20. IN THE LIGHT OF THE ABOVE DISCUSSION, IT IS NOT IN DOUBT OR DISPUTE THAT PURCHASE OF THE CLIENTELE BUSINESS BY THE ASSESSEE FROM M/S. AFC IS A RIGHT WHICH CAN BE USED AS A TOOL TO CARRY ON THE BUSINES S. IT CAN ALSO BE SEEN FROM THE ANGLE OF PURCHASE OF ENTIRE MARKETING NET WORK BY THE ASSESSEE FROM M/S. AFC EVEN IF CONSIDERED FROM THIS ANGLE THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION AS HELD BY THE TRIBUNAL. IN ITA.NO.181/MUM/2008 IN THE CASE OF M/S. JYOTI INDIA METAL INDUSTRIES PVT. LTD. VS. ACIT. THE HON BLE SUPREME COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. (2012) 24 TAX MANN.COM 222 HAS HELD THAT GOODWILL IS AN ASSET ELIGIBLE FOR DEPRECIATION. 21. IN OUR CONSIDERATE VIEW, AFTER CONSIDERING THE ENTIRE GAMUT OF FACTS OF INSTANT CASE, WE HAVE NO HESITATION TO HOLD THAT TH E ASSESSEE IS ENTITLED FOR DEPRECIATION ON PAYMENT OF RS.2.50 CRORES @ 25% WHI CH COMES TO RS.62,50,000/- AS CLAIMED BY THE ASSESSEE. THE ASSE SSING OFFICER IS ACCORDINGLY DIRECTED TO ALLOW THE DEPRECIATION. GRO UND NO.1 IS ACCORDINGLY ALLOWED. 22. GROUND NO.2 IS AN ALTERNATIVE PLEA CLAIMING THE PAYMENT OF RS.2.50 CRORES AS A REVENUE EXPENDITURE. AS WE HAVE ALREADY HELD THAT IT IS A CAPITAL EXPENDITURE ELIGIBLE FOR DEPRECIATION, GROUND NO.2 BECOMES OTIOS AND ACCORDINGLY DISMISSED. 23. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 24. ITA.NO.4851/MUM/2010 : REVENUE HAS SHOWN ITS GRIEVANCE BY RAISING TWO GROUNDS. GROUND NO.1 RELATES TO THE DELETION OF THE ADDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF NON-DEDUCTION OF TD S ON BLOOMBERG DATA SERVICES CHARGES AT RS.4,74,109/-. ACCORDING TO THE REVENUE, THE CIT(A) ERRED IN HOLDING THAT NO TDS WAS REQUIRED TO BE DEDUCTED ON PAYMENT OF RS.4,74,109/- TO BLOOMBERG. DURING THE COURSE OF TH E ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS MADE PAYMENT TO BLOOMBERG DATA SERVICES AT RS.4,74,109/-. THE ASSES SING OFFICER WAS OF THE OPINION THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX ON THESE PAYMENTS. AS THE 12 ASSESSEE HAS FAILED TO DEDUCT TAX THE ASSESSING OFF ICER INVOKED THE PROVISIONS OF SECTION 40A(IA) AND DISALLOWED THE ENTIRE PAYMEN T OF RS.4,74,109/-. 25. BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT THE PAYMENT WAS MADE FOR TERMINAL CHARGES FOR ON LINE INFORMATION AND DATA B ASE ACCESS AND RETRIEVAL SERVICES AND THEREFORE, NO TDS WAS REQUIRED TO BE D EDUCTED AS THE PAYMENT WAS FOR A SUBSCRIPTION OF FINANCIAL E-MAGAZINE AND THEREFORE, THE ASSESSING OFFICER ERRED IN INVOKING THE PROVISIONS OF SECTION 40A(IA). THE CIT(A) AFTER CONSIDERING THE FACTS, GAVE A CATEGORICAL FINDING T HAT THE PAYMENT WAS NOTHING BUT A SUBSCRIPTION TO A FINANCIAL E-MAGAZINE AND TH EREFORE, NOT LIABLE FOR TDS. 26. BEFORE US, THE LEARNED D.R. COULD NOT BRING ANY DISTINGUISHING FACTS WHICH CAN SUGGEST THAT THE PAYMENT WAS LIABLE FOR T DS. IN THAT VIEW OF THE MATTER AND CONSIDERING THE FACT THAT THE PAYMENT IS NOTHING BUT A SUBSCRIPTION FOR E-MAGAZINE/JOURNAL WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE CIT(A) AND WE CONFIRM THE SAME. GROUND NO.1 IS ACCORDINGLY DISMISSED. 27. GROUND NO.2 RELATES TO THE DECISION OF THE CIT( A) WHO HELD THAT ON THE FACTS OF THE CASE PROVISIONS OF SECTION 2 (22) (E) ARE NOT APPLICABLE. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS RECEIVED RS.1.40 CRORES AS LOAN FROM I TS RELATED ENTERPRISE NICH FINANCIAL SERVICES LTD. THE ASSESSING OFFICER OBSER VED THAT RS. 1 CRORE WAS RECEIVED ON 17.3.2006 AND RS. 40 LAKHS WAS RECEIVED ON 13.3.2006. THE ASSESSING OFFICER ALSO NOTICED THAT A SIMILAR ADDIT ION WAS MADE IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. IN VIEW OF T HE SAME, THE ASSESSING OFFICER WENT ON TO TREAT THE LOAN OF RS. 1.40 CRORE S AS DEEMED DIVIDEND AND TAXED AS INCOME FROM OTHER SOURCES. 28. WHEN THE MATTER WAS AGITATED BEFORE THE CIT(A), THE CIT(A) OBSERVED THAT SIMILAR ISSUE WAS DISCUSSED IN DETAIL IN THE CASE O F THE ASSESSEE IN ASSESSMENT YEAR 2005-2006 WHEREIN IT WAS HELD THAT THE ADVANCE OR LOAN BY M/S. NITCH FINANCIAL SERVICES PVT. LTD. TO THE ASSESSEE WAS IN THE ORDINARY COURSE OF BUSINESS WHERE THE LENDING OF MONEY IS SUBSTANTIAL PART OF THE BUSINESS OF THE 13 COMPANY AND IN VIEW OF CLAUSE (II) TO SECTION 2 (22 ) (E) SUCH ADVANCE OR LOAN ARE NOT DIVIDEND. THE CIT(A) CONCLUDED THAT THE FACTS A ND CIRCUMSTANCES FOR THE YEAR UNDER CONSIDERATION BEING THE SAME, FOLLOWING THE DECISION IN ASSESSMENT YEAR 2005-2006, DELETED THE ENTIRE ADDITION MADE BY THE ASSESSING OFFICER. 29. BEFORE US, THE COUNSEL DREW OUR ATTENTION TO TH E DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA.NO.1496/MUM/2009 AND ITA.NO.949/MUM/ 2009 PERTAINING TO ASSESSMENT YEAR 2005-2006 AND SU BMITTED THAT THE TRIBUNAL HAS DISMISSED REVENUES APPEAL HOLDING THA T SECTION 2 (22) (E) IS APPLICABLE IN THE CASE OF DEEMED DIVIDEND ONLY IN T HE HANDS OF SHAREHOLDER. IN THE CASE UNDER CONSIDERATION THE ASSESSEE-COMPANY I S NOT SHARE HOLDER OF NFSPL. THEREFORE, IN THE LIGHT OF JUDGMENT OF JURIS DICTIONAL HIGH COURT IN THE CASE OF UNIVERSAL MEDICARE 190 TAXMANN 144 (BOM.) H ELD THAT DEEMED DIVIDEND UNDER SECTION 2 (22) (E) CANNOT BE TAKEN I N THE HANDS OF THE ASSESSEE. AS NO DISTINGUISHABLE FACTS HAS BEEN BROUGHT ON REC ORD BY THE D.R. WE HAVE NO HESITATION TO FOLLOW THE FINDINGS OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA. NO. 1496/MUM/2009 AND ITA.NO.949/MUM/ 2009 (SUPRA). GROUND NO.2 IS ACCORDINGLY DISMISSED. 30. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 12-12-2012 SD/- SD/- (D.K.AGRAWAL) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATE 12 TH DECEMBER, 2012 VBP/ 14 COPY TO 1. THE ASSESSEE 2. THE RESPONDENT 3. CIT(A) - 8, MUMBAI 4. CIT - 4, MUMBAI 5. DR I BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI