DCIT, Kanpur V. M/s. J.K. Cement Ltd., Kanpur

ITA 497/LKW/2010

• Counselvise Citation: 49723714 RSA 2010
• Duration Of Justice: 4 year(s) 11 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-04-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR ANANT KUMAR AGRAWAL
• Keywords: Capital asset; Depreciation; Question of law; Cost of acquisition; Revised return
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.497 & 498/LKW/2010 ASSESSMENT YEAR:2005-06 & 2006-07 DCIT-6, KANPUR V. M/S J. K. CEMENT LTD. KAMLA TOWER, DWARIKADHEESH ROAD KANPUR TAN/PAN:AAVCH0355R (APPELLANT) (RESPONDENT) APPELLANT BY: DR. ANANT KUMAR AGRAWAL, CIT (DR) RESPONDENT BY: SHRI. AJAY VOHRA, SR. ADVOCATE WITH SHRI. ABHISHEK AGARWAL, ADVOCATE DATE OF HEARING: 28 04 2015 DATE OF PRONOUNCEMENT: 10 06 2015 O R D E R PER SUNIL KUMAR YADAV: THESE APPEALS ARE PREFERRED BY THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE LD. CIT(A) ON COMMON GROUND THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON AN AMOUNT OF RS.7,42,69,500/- WITHOUT APPRECIATING THE FACT THAT THE COMPANY HAS ISSUED 74,26,950 EQUITY SHARES OF RS.10/- EACH TO THE SHAREHOLDERS OF J.K. SYNTHETICS LTD. (HEREINAFTER CALLED IN SHORT AS JKSL) FREE OF COST BY DEBITING TO GOODWILL ACCOUNT AND THE COMPANY HAS CREATED GOODWILL ACCOUNT AND DECLARED IT IN FIXED ASSETS AS PER SCHEDULE IV TO THE ANNUAL REPORT OF THE COMPANY. 2. THESE APPEALS WERE DISPOSED OF BY THE TRIBUNAL VIDE ITS ORDER DATED 28.2.2014 REVERSING THE ORDER OF THE LD. CIT(A), AGAINST WHICH ASSESSEE HAS APPROACHED THE HON'BLE HIGH COURT OF ALLAHABAD AND VIDE JUDGMENT DATED 9.9.2014, THE HON'BLE HIGH COURT OF ALLAHABAD HAS SET ASIDE THE ORDER OF THE :- 2 -: TRIBUNAL AND RESTORED THE PROCEEDINGS BACK TO THE TRIBUNAL FOR A DECISION AFRESH ON MERIT AFTER HEARING BOTH THE PARTIES. CONSEQUENTLY THESE APPEALS WERE LISTED FOR HEARING AND ARGUMENTS OF BOTH THE PARTIES WERE HEARD. 3. THE FACTS IN BRIEF RELATING TO THE CONTROVERSY INVOLVED IN THESE APPEALS CULLED OUT FROM THE ORDERS OF THE LOWER AUTHORITIES ARE THAT THE ASSESSEE, A PUBLIC LIMITED COMPANY ACQUIRED CEMENT UNDERTAKING FROM J.K. SYNTHETICS LTD. AS A GOING CONCERN W.E.F. 4.11.2004 IN PURSUANCE OF THE ORDER OF THE APPELLATE AUTHORITY FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION (AAIFR) DATED 23.1.2003. JKSL HAVE BEEN DECLARED AS A SICK COMPANY BY THE BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR) ON 2.4.1998 AND THE INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI) WAS APPOINTED AS AN OPERATING AGENCY. A DRAFT REHABILITATION SCHEME WAS CIRCULATED WHICH ENVISAGED TRANSFER OF THE CEMENT UNDERTAKINGS OF THE SICK COMPANY TO THE ASSESSEE ON THE PAYMENT OF OUTSTANDING DUES OF THE FINANCIAL INSTITUTIONS AND BANKS AS CONSIDERATION FOR THE TRANSFER. THE SCHEME WHICH WAS SANCTIONED BY THE AAIFR DEFINED THE EXPRESSION DEMERGER TO MAIN TRANSFER OF SALE THROUGH SECTION 18(6A) OF SICK INDUSTRIAL COMPANIES SPECIAL PROVISIONS ACT, 1985. THE COST OF THE SCHEME WAS SHOWN IN CLAUSE (C) TO BE OF RS.510.39 CRORES INCLUDING THE EQUITY SHARES OF THE ASSESSEE TO THE EXISTING SHAREHOLDING OF JKSL FOR AN AMOUNT OF RS.7.44 CRORES. THE MEANS FOR FINANCING THE COST OF THE SCHEME INCLUDED GOODWILL IN THE CEMENT UNDERTAKING FOR ALLOTMENT OF EQUITY SHARES OF THE ASSESSEE TO THE EXISTING SHAREHOLDERS OF JKSL OF RS.7.44 CRORES. CLAUSE (E) OF THE SCHEME WHICH WAS TITLED AS REHABILITATION STRATEGY PROVIDED THAT MERGER OF THE CEMENT UNDERTAKING OF JKSL INTO THE ASSESSEE AS A GOING CONCERN ON AS IS WHERE IS BASIS INCLUDING ALL FIXED ASSETS AND CURRENT LIABILITIES. CLAUSE H(E) OF THE SCHEME CONTEMPLATED THAT THE ASSESSEE WOULD ISSUE ONE PAID UP EQUITY SHARE OF PHASE VALUE OF RS.10/- FREE OF COST TO ALL THE EXISTING SHAREHOLDERS OF JKSL AGAINST RS.10/- EQUITY SHARES OF JKSL HELD BY THEM. :- 3 -: 4. THE ASSESSEE IN ITS ORIGINAL RETURN OF INCOME CLAIMED DEPRECIATION OF RS.72,32,58,987/-. THE ASSESSEE, HOWEVER, FILED A REVISED RETURN ENHANCING THE CLAIM OF DEPRECIATION TO RS.73,26,86,528/-. CONSEQUENTLY, ADDITIONAL AMOUNT OF DEPRECIATION OF RS.94,27,541/- WAS CLAIMED. ACCORDING TO THE ASSESSEE, THE SCHEME ENVISAGED ALLOTMENT OF EQUITY SHAREHOLDERS OF JKSL, WHICH WAS DEBITED TO THE GOODWILL ACCOUNT IN THE BOOKS OF THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE AFORESAID AMOUNT OF RS.7.44 CRORES FORMS PART OF PURCHASE CONSIDERATION AND DEPRECIATION WAS ALLOWABLE ON IT. THE ASSESSING OFFICER VIDE HIS ORDER DATED 26.12.2007 DECLINED TO ALLOW THE ENHANCED CLAIM OF DEPRECIATION AND RESTRICTED THE QUANTUM OF ADDITION TO THE AMOUNT OF RS.72,32,58,987/-, AS CLAIMED IN THE ORIGINAL RETURN. 5. IN APPEAL, THE LD. CIT(A) BY HIS ORDER DATED 7.5.2010 REVERSED THE ORDER OF THE ASSESSING OFFICER ON THIS ASPECT ON THE GROUND THAT ISSUANCE OF SHARES WAS TOWARDS PART PAYMENT OF PURCHASE CONSIDERATION AND HENCE WAS INCLUDED IN THE COST OF ACQUISITION OF CEMENT UNDERTAKING. THEREFORE, THE ASSESSEE COULD NOT BE DEPRIVED OF DEPRECIATION BY MAINLY TREATING THE ISSUE OF SHARES TO THE GOODWILL ACCOUNT. THE LD. CIT(A) HAS HELD IN ALTERNATIVE THAT EVEN IF THE CONSIDERATION IN THE FORM OF SHARES WAS PAID FOR PURCHASE OF GOODWILL, THIS PAYMENT COULD BE CONSIDERED AS PAYMENT FOR ACQUIRING BRANDS OF THE DEMERGED COMPANY UPON WHICH DEPRECIATION WAS ALLOWABLE UNDER SECTION 32 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). 6. AGGRIEVED, THE REVENUE IS BEFORE THE TRIBUNAL AND THE LD. D.R., BESIDES PLACING RELIABLE UPON THE ORDER OF THE ASSESSING OFFICER, HAS CONTENDED THAT THE REVISED CLAIM OF THE ASSESSEE FOR ENHANCED DEPRECIATION INCLUDES DEPRECIATION ON THE AMOUNT OF GOODWILL WHICH IS NOT A FIXED ASSET AS PER PROVISIONS OF SECTION 32 OF THE ACT. THEREFORE, THE ENHANCED CLAIM OF DEPRECIATION CANNOT BE ALLOWED. IN SUPPORT OF HIS CONTENTION, THE LD. :- 4 -: D.R. HAS PLACED RELIANCE UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF R.G. KESWANI VS. ACIT, MUMBAI, 116 ITD 133 (MUMBAI) AND DCIT VS. TOYO ENGINEERING INDIA LTD., 18 ITR (T) 159 (MUMBAI-TRIB.). RELIANCE WAS ALSO PLACED UPON THE ORDER OF THE TRIBUNAL IN THE CASE OF CHOWGULE & CO. (P.) LTD. VS. ACIT, 131 ITD 545 (PANAJI). 7. IN OPUGNATION, THE LD. COUNSEL FOR THE ASSESSEE, BESIDES PLACING RELIANCE UPON THE ORDER OF THE LD. CIT(A), HAS CONTENDED THAT THE COST OF ASSET OF THE CEMENT COMPANY, WHICH ARE TO BE MERGED WITH THE ASSESSEE- COMPANY, WAS SPECIFIED IN THE SCHEME. THOUGH A SUM OF RS.7.44 CRORES TOWARDS ISSUANCE OF EQUITY SHARES OF JKSL TO THE EXISTING SHAREHOLDERS OF JKSL WAS PART OF THE SCHEME AND IN THE MEANS OF FINANCE IT WAS SHOWN AGAINST GOODWILL ACCOUNT, YET IT WAS ACTUALLY THE COST OF ASSET ON WHICH DEPRECIATION IS TO BE ALLOWED. EVEN IF ISSUANCE OF EQUITY SHARES FOR A SUM OF RS.7.44 CRORES IS TO BE CONSIDERED AGAINST THE VALUE OF GOODWILL, THE DEPRECIATION IS TO BE ALLOWED IN THE LIGHT OF SERIES OF JUDGMENTS OF THE HON'BLE APEX COURT AND VARIOUS HIGH COURTS AND IN SUPPORT OF THIS PROPOSITION OF LAW, HE HAS PLACED RELIANCE UPON THE JUDGMENT OF THE HON'BLE APEX COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD., 348 ITR 302 AND THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF AREVA T AND D INDIA LTD. VS. DCIT, 345 ITR 421 WHICH WAS LATER ON APPROVED BY THE HON'BLE APEX COURT BY DISMISSING THE SLP FILED BY THE DEPARTMENT; AND THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANIPAL UNIVERSAL LEARNING PVT. LTD., 359 ITR 369 WHICH WAS ALSO LATER ON APPROVED BY THE HON'BLE SUPREME COURT. 8. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED THAT SINCE THE FINDINGS OF THE LD. CIT(A) ARE IN CONSONANCE WITH THE JUDGMENTS OF THE HON'BLE APEX COURT AND VARIOUS HIGH COURTS, THE SAME DESERVES TO BE CONFIRMED AND NO INTERFERENCE IS CALLED THEREIN. :- 5 -: 9. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER AUTHORITIES; DOCUMENTS FILED AND JUDGMENTS REFERRED TO BY THE RESPECTIVE PARTIES IN THE LIGHT OF THE RIVAL SUBMISSIONS, WE FIND THAT UNDISPUTEDLY THE ASSESSEE- COMPANY ACQUIRED THE CEMENT UNDERTAKING OF JKSL, A GOING CONCERN W.E.F. 4.11.2004 IN PURSUANCE OF THE ORDER OF AAIFR. IT IS ALSO AN UNDISPUTED FACT THE JKSL WAS DECLARED A SICK COMPANY BY THE BIFR AND AS PER REHABILITATION SCHEME, WHICH WAS APPROVED BY THE AAIFR, THE COST OF THE SCHEME WAS OF RS.510.30 CRORES INCLUDING THE ISSUANCE OF EQUITY SHARES OF THE ASSESSEE TO THE EXISTING SHAREHOLDERS OF JKSL FOR AN AMOUNT OF RS.7.44 CRORES. UNDER THE MEANS OF FINANCE, THE ALLOTMENT OF EQUITY SHARES OF JKSL TO THE EXISTING SHAREHOLDERS OF JKSL WAS SHOWN AGAINST GOODWILL IN CEMENT UNDERTAKING. IT IS ALSO AN UNDISPUTED FACT THAT INSTEAD OF MAKING PAYMENTS OF RS.7.44 CRORES, WHICH IS PART OF THE COST OF THE SCHEME, THE ASSESSEE HAS ISSUED EQUITY SHARES OF THE ASSESSEE TO THE SHAREHOLDERS OF JKSL. THEREFORE, ISSUANCE OF SHARES IS ALSO COST OF ASSET OR AT THE MOST IT WILL BE CALLED TO BE COST OF GOODWILL. BUT FOR BOTH THE REASONS THE ASSESSEE IS ENTITLED FOR DEPRECIATION. THE ASSESSEE HAS ORIGINALLY CLAIMED DEPRECIATION AT RS.72,32,58,987.38 ON ITS CAPITAL ASSETS OF RS.5,67,62,40,544.27. HAVING INCLUDED THE COST OF GOODWILL WHICH WAS SPREAD OVER TO THE COST OF VARIOUS ASSETS, THE TOTAL COST OF ASSETS COMES TO RS.5,75,05,10,044.63 ON WHICH DEPRECIATION WAS CLAIMED AT RS.73,26,86,528.73. THE REVENUES STAND IS THAT COST OF GOODWILL WAS SPREAD OVER ON VARIOUS ASSETS WHEREAS DEPRECIATION COULD HAVE BEEN CLAIMED ON THE COST OF GOODWILL AND SINCE THE GOODWILL IS NOT AN INTANGIBLE ASSET OF THE ASSESSEE-COMPANY, THE ASSESSEE IS NOT ENTITLED FOR DEPRECIATION. 10. OUR ATTENTION WAS ALSO INVITED TO EXPLANATION 3 BELOW SECTION 32(1) OF THE ACT. WHILE ALLOWING THE CLAIM OF THE ASSESSEE, THE LD. CIT(A) HAS HELD THAT ISSUANCE OF SHARES FOR RS.7.44 CRORES WAS A PART PAYMENT OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION OF CEMENT UNDERTAKING, :- 6 -: THEREFORE, THE COST OF SHARES ISSUED TO THE SHAREHOLDER OF JKSL IS ELIGIBLE FOR DEPRECIATION AND THE LD. CIT(A) HAS ALSO HELD THAT EVEN IF IT IS CONSIDERED TO BE THE COST OF GOODWILL OF JKSL, STILL THE ASSESSEE IS ENTITLED FOR DEPRECIATION. DURING THE COURSE OF HEARING OF THE APPEAL, THE LD. D.R. HAS PLACED EMPHASIS THAT THIS COST OF SHARES ISSUED TO JKSL IS NOT PART OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION OF CEMENT UNDERTAKING BUT IT IS A COST OF GOODWILL AND IS NOT ELIGIBLE FOR DEPRECIATION. THERE IS NO QUARREL ON THE PROPOSITION OF LAW THAT IF THE COST OF SHARES ALLOTTED TO THE SHAREHOLDERS OF JKSL IS CONSIDERED AS THE PAYMENT OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION TO THE CEMENT UNDERTAKING, THEN THE ASSESSEE IS ELIGIBLE FOR DEPRECIATION OF THE SAID COST. THE DISPUTE WAS RAISED THAT IT IS NOT A PART OF PAYMENT OF PURCHASE CONSIDERATION TOWARDS COST OF ACQUISITION OF CEMENT UNDERTAKING. IT WAS RATHER CALLED TO BE THE COST OF GOODWILL WHICH WAS TRANSFERRED TO THE ASSESSEE. IN THIS REGARD, WE HAVE CAREFULLY PERUSED THE JUDGMENTS REFERRED TO BY THE PARTIES. 11. IN THE CASE OF R.G. KESWANI VS. ACIT (SUPRA) AND DCIT VS. TOYO ENGINEERING INDIA LTD. (SUPRA), THE MUMBAI BENCHES OF THE TRIBUNAL HAVE TAKEN A VIEW THAT NO DEPRECIATION WOULD BE ALLOWED ON GOODWILL, BUT THE CONTROVERSY WITH REGARD TO THE ALLOWANCE OF DEPRECIATION ON GOODWILL HAS BEEN SET AT REST BY THE HON'BLE APEX COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. (SUPRA) IN WHICH THEIR LORDSHIPS HAVE HELD THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND 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. THEREFORE, THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON THE SAID GOODWILL. THE RELEVANT OBSERVATIONS OF THE HON'BLE APEX COURT ARE EXTRACTED HEREUNDER IN ORDER TO UNDERSTAND THE LEGAL PROPOSITION AND CONTROVERSY RAISED THEREIN:- WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32(1) OF THE ACT: :- 7 -: 'EXPLANATION 3. FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRES SIONS 'ASSETS' AND 'BLOCK OF ASSETS' SHALL MEAN (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE ; (B) INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE :' EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' SHALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. AREADING 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). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'GOODWILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 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) ('THE 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 P. LTD. 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 THE INCOME-TAX :- 8 -: APPELLATE TRIBUNAL ('THE ITAT', FOR SHORT). WE SEE NO REASON TO INTERFERE WITH THE FACTUAL FINDING. ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS THAT, AGAINST THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL, 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. FOR THE AFORESTATED REASONS, WE ANSWER QUESTION NO. (B) ALSO IN FAVOUR OF THE ASSESSEE. 12. IN THE CASE OF AREVA T AND D INDIA LTD. VS. DCIT (SUPRA), THE HON'BLE DELHI HIGH COURT HAS EXAMINED THIS ISSUE IN THE LIGHT OF LEGAL PROVISIONS OF THE ACT AND VARIOUS JUDGMENTS OF THE HON'BLE APEX COURT AND FINALLY CONCLUDED THAT SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEMENT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION. THEIR LORDSHIPS HAS FURTHER HELD THAT EVEN IN THE ALTERNATIVE THE ASSESSEE IS ENTITLED FOR DEPRECIATION. THE FACTS OF THAT CASE ARE QUITE SIMILAR TO THE FACTS OF THE PRESENT CASE AND WE EXTRACT THE FINDINGS OF THE HON'BLE DELHI HIGH COURT IN THIS CASE AS UNDER:- IN THE PRESENT CASE, IT IS SEEN THAT THE ASSESSEE, VIDE SLUMP SALE AGREEMENT DATED JUNE 30, 2004, ACQUIRED, AS A GOING CONCERN, THE TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR COMPANY WITH EFFECT FROM APRIL 1, 2004. AS A RESULT THEREOF, THE RUNNING BUSINESS OF TRANSMISSION AND DISTRIBUTION WAS ACQUIRED BY THE TRANSFEREE LOCK, STOCK AND BARREL MINUS THE TRADE MARK OF THE TRANSFEROR WHICH WAS RETAINED BY THE TRANSFEROR, FOR LUMP SUM CONSIDERATION OF RS. 44.7 CRORES. IT IS FURTHER SEEN THAT THE BOOK VALUE OF THE NET TANGIBLE ASSETS (ASSETS MINUS LIABILITIES) ACQUIRED WAS RECORDED IN THE BALANCE- :- 9 -: SHEET OF THE TRANSFEROR AS ON THE DATE OF TRANSFER AS RS. 28.11 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. 16,58,76,000 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) BUSINESS CLAIMS, (II) BUSINESS INFORMATION, (III) BUSINESS RECORDS, (IV) CONTRACTS, (V) SKILLED EMPLOYEES, (VI) KNOW-HOW. IT IS ALSO OBSERVED THAT THE ASSESSING OFFICER ACCEPTED THE ALLOCATION OF THE SLUMP CONSIDERATION OF RS. 44.7 CRORES PAID BY THE TRANSFEREE, BETWEEN TANGIBLE ASSETS AND INTANGIBLE ASSETS (DESCRIBED AS GOODWILL) ACQUIRED AS PART OF THE RUNNING BUSINESS. THE ASSESSING OFFICER, HOWEVER, HELD THAT DEPRECIATION IN TERMS OF SECTION 32(1)(II) OF THE ACT WAS NOT, IN LAW, AVAILABLE ON GOODWILL. THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE INCOME-TAX APPELLATE TRIBUNAL APPROVED THE REASONING OF THE ASSESSING OFFICER THEREBY HOLDING DISALLOWANCE OF DEPRECIATION ON THE AMOUNT DESCRIBED AS GOODWILL. IT WAS THUS ARGUED ON BEHALF OF THE ASSESSEE-COMPANY THAT SECTION 32(1)(II) WOULD MEAN RIGHTS SIMILAR IN NATURE AS THE SPECIFIED ASSETS, VIZ., INTANGIBLE, VALUABLE AND CAPABLE OF BEING TRANSFERRED AND THAT SUCH ASSETS WERE ELIGIBLE FOR DEPRECIATION. ON BEHALF OF THE RESPONDENT IT WAS ARGUED THAT APPLYING THE DOCTRINE OF NOSCITUR SOCIIS THE EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' USED IN EXPLANATION 3(B) TO SECTION 32(1) HAS TO TAKE COLOUR FROM THE PRECEDING WORDS 'KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES'. IT WAS URGED THAT THE SUPREME COURT HAD CLEARLY HELD IN TECHNO SHARES AND STOCKS LTD. [2010] 327 ITR 323 (SC) THAT 'OUR JUDGMENT SHOULD NOT BE UNDERSTOOD TO MEAN THAT EVERY BUSINESS OR COMMERCIAL RIGHT WOULD CONSTITUTE A 'LICENCE' OR A 'FRANCHISE' IN TERMS OF SECTION 32(1)(II) OF THE 1961 ACT'. IN THE PRESENT CASE, APPLYING THE PRINCIPLE OF EJUSDEM GENERIS, WHICH PROVIDES THAT WHERE THERE ARE GENERAL WORDS FOLLOWING PARTICULAR AND :- 10 -: SPECIFIC WORDS, THE MEANING OF THE LATTER WORDS SHALL BE CONFINED TO THINGS OF THE SAME KIND, AS SPECIFIED FOR INTERPRETING 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, LICENCES OR FRANCHISES' BUT MUST BE OF SIMILAR NATURE AS THE SPECIFIED ASSETS. ON A PERUSAL OF THE MEANING OF THE CATEGORIES OF SPECIFIC INTANGIBLE ASSETS REFERRED TO IN SECTION 32(1)(II) OF THE ACT PRECEDING THE TERM 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE', IT IS SEEN THAT THE AFORESAID INTANGIBLE ASSETS ARE NOT OF THE SAME KIND AND ARE CLEARLY DISTINCT FROM ONE ANOTHER. THE FACT THAT AFTER THE SPECIFIED INTANGIBLE ASSETS THE WORDS 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' HAVE BEEN ADDITIONALLY USED, CLEARLY DEMONSTRATES THAT THE LEGISLATURE DID NOT INTEND TO PROVIDE FOR DEPRECIATION ONLY IN RESPECT OF SPECIFIED INTANGIBLE ASSETS BUT ALSO TO OTHER CATEGORIES OF INTANGIBLE ASSETS, WHICH WERE NEITHER FEASIBLE NOR POSSIBLE TO EXHAUSTIVELY ENUMERATE. IN THE CIRCUMSTANCES, THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS' CANNOT BE RESTRICTED 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 SIX 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 THE CIRCUMSTANCES, IT IS OBSERVED THAT IN THE CASE OF THE ASSESSEE, INTANGIBLE ASSETS, VIZ., BUSINESS CLAIMS ; BUSINESS INFORMATION ; BUSINESS RECORDS ; CONTRACTS; EMPLOYEES ; AND KNOW-HOW, ARE ALL ASSETS, WHICH ARE INVALUABLE AND RESULT IN CARRYING ON THE TRANSMISSION AND DISTRIBUTION BUSINESS BY THE ASSESSEE, WHICH WAS HITHERTO BEING CARRIED OUT BY THE TRANSFEROR, WITHOUT ANY INTERRUPTION. THE AFORESAID INTANGIBLE ASSETS ARE, THEREFORE, COMPARABLE TO A LICENCE TO CARRY OUT THE EXISTING TRANSMISSION AND DISTRIBUTION BUSINESS OF THE TRANSFEROR. 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 :- 11 -: 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 SUPREME COURT IN TECHNO SHARES AND STOCKS LTD. [2010] 327 ITR 323 (SC) WHEREIN IT WAS HELD THAT INTANGIBLE ASSETS OWNED BY THE ASSESSEE AND USED FOR THE BUSINESS PURPOSE WHICH ENABLES THE ASSESSEE TO ACCESS THE MARKET 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 THE ACT. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT THE SPECIFIED INTANGIBLE ASSETS ACQUIRED UNDER SLUMP SALE AGREEMENT WERE IN THE NATURE OF 'BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE' SPECIFIED IN SECTION 32(1)(II) OF THE ACT AND WERE ACCORDINGLY ELIGIBLE FOR DEPRECIATION UNDER THAT SECTION. IN VIEW OF THE ABOVE, IT IS NOT NECESSARY TO DECIDE THE ALTERNATIVE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT GOODWILL PER SE IS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. IN THE CIRCUMSTANCES, THE SUBSTANTIAL QUESTION OF LAW IS DECIDED IN THE AFFIRMATIVE AND THIS APPEAL IS ALLOWED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE AND THE IMPUGNED ORDER IS SET ASIDE. 13. THIS JUDGMENT OF THE HON'BLE DELHI HIGH COURT WAS APPROVED BY THE HON'BLE APEX COURT AS THE SLP FILED BY THE DEPARTMENT WAS DISMISSED ON MERIT ALSO. 14. SIMILAR VIEW WAS EXPRESSED BY THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MANIPAL UNIVERSAL LEARNING PVT. LTD. (SUPRA) BY HOLDING THAT EXPLANATION 3 TO SECTION 32(1) OF THE ACT DEFINES EXPRESSION ASSET TO INCLUDE INTANGIBLE ASSET LIKE GOODWILL AND GOODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT, THEREFORE, DEPRECIATION IS ALLOWABLE EVEN ON THE GOODWILL. 15. AGAIN IN THE CASE OF CIT VS. HINDUSTAN COCA-COLA BEVERAGES (P) LTD., 331 ITR 192, THE HON'BLE DELHI HIGH COURT HAS EXAMINED THE ISSUE OF :- 12 -: DEPRECIATION ON GOODWILL IN DETAIL AND FINALLY CONCLUDED THAT GOODWILL IS A VALUABLE COMMERCIAL ASSET SIMILAR TO OTHER INTANGIBLE ASSETS MENTIONED IN THE DEFINITION OF BLOCK OF ASSETS AND HENCE ELIGIBLE FOR DEPRECIATION. THE VIEW TAKEN BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HINDUSTAN COCA-COLA BEVERAGES (P) LTD. (SUPRA) WAS APPROVED BY THE HON'BLE APEX COURT. 16. IN THE LIGHT OF THIS LEGAL PROPOSITION, WE ARE OF THE VIEW THAT FIRST OF ALL THE COST OF SHARES ALLOTTED TO THE SHAREHOLDERS OF JKSL IS PART OF PAYMENT OF PURCHASE CONSIDERATION TOWARDS THE COST OF ACQUISITION OF CEMENT UNDERTAKING ON WHICH ASSESSEE IS ELIGIBLE FOR DEPRECIATION. EVEN IN THE ALTERNATIVE, IF THE COST OF SHARES ALLOTTED TO THE SHAREHOLDERS OF JKSL IS CONSIDERED TO BE THE COST OF GOODWILL ACQUIRED BY THE ASSESSEE, AS IT WAS SHOWN AS PART OF MEANS OF FINANCE, EVEN THEN IT IS ELIGIBLE FOR DEPRECIATION IN THE LIGHT OF THE AFORESAID JUDGMENTS OF THE HON'BLE HIGH COURT AND THE HON'BLE APEX COURT. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY ADJUDICATED THE ISSUE AND WE DO NOT FIND ANY INFIRMITY THEREIN. ACCORDINGLY WE CONFIRM HIS ORDERS IN BOTH THE YEARS. 17. IN THE RESULT, APPEALS OF THE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH JULY, 2015 JJ:1906 :- 13 -: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR