Pitney Bowes India Pvt. Ltd., New Delhi V. ACIT, CIRCLE- 20(1), New Delhi

ITA 5158/DEL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5884 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2013-2014
• Appeal Filed On: 09-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: MANONIT DALAL
• Keywords: Depreciation; Retrospective amendment; Question of law; Valuation report; Scheme of amalgamation; Revised return; Revenue expenditure
• Section: 143(3); 139(5); 32; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F, NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.- 6119/DEL/2016, (ASSESSMENT YEAR: 2011-12) & ITA NOS.- 5157, 5158 & 5546/DEL/2017 ( ASSESSMENT YEARS: 2012-13, 2013-14 & 2014-15) PITNEY BOWES INDIA PRIVATE LIMITED. D7/3, OKHLA INDUSTRIAL ESTATE PHASE-II NEW DELHI. VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 20(1), NEW DELHI. PAN NO: AADCP3417C APPELLANT RESPONDENT ASSESSEE BY : SH. MANONIT DALAL (ADV .) REVENUE BY : SH. ATIQ AHMED (SR. DR) DATE OF HEARING : 22.05.2018. DATE OF PRONOUNCEMENT : 30/05/2018. ORDER PER BENCH: THESE APPEALS BY THE ASSESSEE ARE PREFERRED AGAINST SEPARATE ORDERS PASSED BY THE LD. COMMISSIONER OF INCOME-TAX (APPEA LS)-7, NEW DELHI [IN SHORT 2 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. THE LD. CIT(A), ORDER DATED 06/09/2016 FOR ASSESSMEN T YEAR 2011-12, ORDER DATED 31/05/2017 FOR ASSESSMENT YEAR 2012-13; ORDER DATED 31/05/2017 FOR ASSESSMENT YEAR 2013-14; ORDER DATED 30/06/2017 FO R ASSESSMENT YEAR 2014-15 RESPECTIVELY. IN ALL THESE APPEALS, IDENTICAL ISSUE S HAVE BEEN RAISED EXCEPT CHANGE OF AMOUNT OF ADDITIONS, THEREFORE THESE APPE ALS WERE HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER FOR CO NVENIENCE AND BREVITY. THE GROUNDS IN ALL THE YEARS BEING ALMOST IDENTICAL, WE ARE REPRODUCING GROUNDS OF APPEAL RAISED IN ITA NO. 6119/DEL/2016 QUA ASSESSMENT YEAR 2011-12 AS UNDER: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED UNDER SECTION 250(6) OF THE ACT BY THE HONBLE CIT(A) IS ERRONEOUS AND BAD IN LAW AS WELL AS IN FACTS IN RESPECT OF TH E GROUNDS OF APPEAL MENTIONED BELOW. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN UPHOLDING THE DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER (LD. AO) ON ACCOUNT OF DEPRECIATION ON GOODWILL UNDER SECTION 32 OF THE AC T AMOUNTING TO INR 2,959,092/- 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FATS IN UPHOLDING THE DISALLOWANCE MADE BY THE LD. AO ON ACCOUNT OF DEPRE CIATION ON NON-COMPLETE FEE UNDER SECTION 32 OF THE ACT AMOUNTING TO INR 3, 085,933. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER , AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING O F THIS APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ON 23/11/2011 DECLARING TOTAL INCOME OF RS. 3 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. 5,19,57,687/-; FOR ASSESSMENT YEAR 2012-13 ON 28/12 /2013 DECLARING TOTAL INCOME OF RS. 5,84,50,930/-; FOR ASSESSMENT YEAR 20 13-14 ON 28/11/2013 DECLARING LOSS OF RS. 2,21,71,329/-; FOR ASSESSMENT YEAR 2014-15 ON 28/11/2014 DECLARING LOSS OF RS. 1,25,76,660/. THE CASES IN ALL THESE ASSESSMENT YEARS WERE SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143( 2) OF THE INCOME-TAX ACT, 1961(IN SHORT THE ACT) WERE ISSUED AND COMPLIED WIT H. THE ASSESSMENTS UNDER SECTION 143(3) OF THE ACT WERE COMPLETED AFTER MAKIN G VARIOUS ADDITION/DISALLOWANCES IN ALL THESE ASSESSMENT YEARS INVOLVED. IN ASSESSMENT YEAR 2011-12, THE APPEAL HAS BEEN PARTLY ALLOWED BY THE LD. CIT(A), WHEREAS FOR ASSESSMENT YEARS 2012-13 TO ASSESSMENT YEAR 2014-15 , THE APPEALS FILED BY THE ASSESSEE HAVE BEEN DISMISSED BY THE LD. CIT(A). CONS EQUENT TO THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS CHALLENGED FOLLOWING ADD ITIONS/ DISALLOWANCES BEFORE THE TRIBUNAL: AY/ADDITIONS DEPRECIATION ON NONCOMPETE FEE (RS.) DEPRECIATION ON GOODWILL(RS.) TOTAL 2011-12 30,85,933 29,59,092 2012-13 23,14,449 22,19,319 2013-14 17,35,837 16,64,489 2014-15 13,01,878 12,48,367 3. IN ASSESSMENT YEAR 2011-12, THE ASSESSING OFFICE R DISALLOWED THE CLAIM OF DEPRECIATION ON THE GOODWILL OBSERVING AS UNDER: 4 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. IN VIEW OF THE ABOVE FINDINGS, THE ASSESSEE HAS NO T PROVIDED SUFFICIENT DOCUMENTARY EVIDENCE/JUSTIFICATION ON VALUATION OF GOODWILL. THE DEPRECIATION ON GOODWILL IS CLAIMED BY THE ASSESSEE COMPANY FIRS T TIME DURING THE FINANCIAL YEAR, AND IN LACK OF SUPPORTING DOCUMENTS & ITS JUS TIFICATION ON VALUATION OF GOODWILL, VALUE OF GOODWILL COULD NOT BE ASCERTAINE D, THE DEPRECIATION ON GOODWILL CLAIMED OF RS. 29,59,092/- IS NOT ALLOWED TO THE AS SESSEE COMPANY AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE DURING THE YEAR. 4. SIMILARLY, THE ASSESSING OFFICER DISALLOWED THE C LAIM OF DEPRECIATION ON NON- COMPETE FEE IN ASSESSMENT YEAR 2011-12 OBSERVI NG AS UNDER: IN VIEW OF THE ABOVE FINDINGS, THE ASSESSEE COULD N OT PROVIDED THE PROPER JUSTIFICATION ON VALUATION OF NON COMPETE FEES. SIN CE THE DEPRECIATION ON NON- COMPETE FEES IS CLAIMED BY THE ASSESSEE COMPANY FIR ST TIME DURING THE FINANCIAL YEAR AND IN LACK OF PROPER JUSTIFICATION & VALUATIO N OF NON-COMPETE FEES, VALUATION OF NON-COMPETE FEES COULD NOT BE ASCERTAI NED. FURTHER NON COMPETE FEES OF RS. 5,94,47,290/- IS NOT AN INTANGIBLE ASSE TS AS PER SECTION 32(1) OF THE INCOME TAX ACT, THE ASSESSEE HAS NOT CLAIMED THE DE PRECIATION IN ANY OF THE PRECEDING FINANCIAL YEARS AND CLAIMED THE SAME AS D EFERRED REVENUE EXPENDITURE WHICH ALSO HAS BEEN DISALLOWED IN EARLIER FINANCIAL YEARS, THE DEPRECIATION ON NON-COMPETE FEES COULD NOT BE ALLOWED TO THE ASSESS EE DURING THE YEAR. HENCE AN AMOUNT OF RS. 30,85,933/- IS DISALLOWED AND ADDE D BACK TO THE TOTAL INCOME OF THE ASSESSEE DURING THE YEAR. 5. IN ASSESSMENT YEAR 2012-13, THE ASSESSING OFFICE R DISALLOWED THE DEPRECIATION BOTH ON THE GOODWILL AS WELL AS ON THE N ON-COMPETE FEE OBSERVING AS UNDER: 3.4 DURING THE COURSE OF THE ASSESSMENT PROCEEDIN GS THE ASSESSEE VIDE LETTER DATED 29.02.2016 REQUESTED FOR ALLOWANCE OF DEPRECIATION OF RS. 23,14,449/-ON NON-COMPETE FEE AND RS. 22,19,319/- O N GOODWILL. AT THE OUTSET, IT IS OBSERVED THAT SUCH CLAIM AMOUNTS TO R EVISIONS OF RETURN AND SUCH REVISION IS NOT PERMISSIBLE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF GOEZTE INDIA LTD. V CIT 284 IT R 323 SC, AS PER WHICH ANY NEW CLAIM OR ANY CHANGE IN THE ORIGINAL RETURN CAN ONLY BE MADE BY WAY OF FILING A REVISED RETURN AS PER THE PROVISIONS OF SE CTION 139(5) OF THE I.T.ACT, 1961 AND NOT BY WAY OF MAKING A CLAIM BY WAY OF FIL ING A PLAIN LETTER BEFORE 5 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. THE ASSESSING OFFICER. THE CLAIM OF THE ASSESSEE IS ALSO NOT ACCEPTABLE IN VIEW OF THE DETAILED ORDERS PASSED IN AY 2011-12 AND EAR LIER YEARS IN WHICH THE SAID AMOUNTS WERE NOT ALLOWED AND WERE ADDED TO THE INCO ME OF THE ASSESSEE. SINCE, THE FACTS AND THE CIRCUMSTANCES FOR THIS YEA R ARE ALSO SIMILAR; THE CLAIM OF THE ASSESSEE NOT MADE IN THE RETURN OF INCOME IS NOT ALLOWABLE ON MERITS AS WELL. 6. DISALLOWANCES IN ASSESSMENT YEARS 2013-14 AND 201 4-15 HAVE BEEN MADE AFTER MAKING SIMILAR OBSERVATIONS AS MADE IN ASSESS MENT YEAR 2012-13. 7. IN ALL THE ASSESSMENT YEARS FROM 2011-12 TO 2014 -15, THE LD. CIT(A) FOLLOWED FINDING OF HIS PREDECESSOR IN ASSESSMENT YE AR 2009-10 AND UPHELD BOTH THE DISALLOWANCES. 8. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TTED THAT BOTH THE ISSUES IN DISPUTE OF DEPRECIATION ON GOODWILL AS WELL AS DEP RECIATION ON NON-COMPETE FEE ARE COVERED BY THE ORDER OF THE TRIBUNAL IN ITA NO. 289 TO 293/DEL/2013 FOR ASSESSMENT YEAR 2005-06 TO ASSESSMENT YEAR 2009-10 RESPECTIVELY. THE LD. COUNSEL SUBMITTED THAT THE ISSUE OF DEPRECIATION OF GOODWILL IS COVERED IN FAVOUR OF THE ASSESSEE WHEREAS THE ISSUE OF DEPRECIATION ON NON-COMPETE FEE IS COVERED AGAINST ASSESSEE. 9. THE LD. DR ALSO COULD NOT CONTROVERT ABOVE STATEM ENT OF THE LD. COUNSEL, AND SUBMITTED THAT ISSUE IN DISPUTE IN PRESENT APPE ALS MAY BE DECIDED ACCORDINGLY. 6 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE COMPANY IS SUBSIDIARY OF M/S PI TNEY BOWES INTERNATIONAL HOLDING INC., USA. THE ASSESSEE COMPANY TOOK OVER MA ILING BUSINESS OF M/S KILBURN OFFICE AUTOMATION LTD (KOAL) ON SLUM SALE B ASIS VIDE BUSINESS TRANSFER AGREEMENT (BTA) EXECUTED ON 15/10/2004. UNDER THE B TA, THE ASSESSEE CLAIMED TO HAVE PAID FOR NON-COMPETE FEE AND GOODWILL. ACCOR DINGLY, THE ASSESSEE CLAIMED DEPRECIATION ON GOODWILL AND NON-COMPETE FEE IN VARIOUS YEARS, INCLUDING IN THE YEARS INVOLVED BEFORE US IN APPEALS. 11. THE TRIBUNAL IN ITA NUMBERS 289 TO 293/DEL/2013 FOR ASSESSMENT YEARS 2005-06 TO 2009-10, ADJUDICATED, THE ISSUE OF DEPRE CIATION ON NON-COMPETE FEE AGAINST ASSESSEE OBSERVING AS UNDER: 6.6 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSE D THE RELEVANT MATERIAL ON RECORD. THE ISSUE IN DISPUTE IS WHETHER NON-COMPETE FEE IS IN THE NATURE OF INTANGIBLE ASSETS ELIGIBLE FOR DEPRECIATION UNDER S ECTION 32(1)(II) OF THE ACT. THIS ISSUE HAS BEEN DECIDED BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF SHARP BUSINESS SYSTEM (SUPRA) AS UNDER: 'Q. NOS. 2 AND 3 IN TANGIBLE ASSET - 11. THIS QUESTION AROSE AS A DIRECT SEQUEL TO THE A PPELLANTS ALTERNATIVE SUBMISSION THAT IF THE EXPENDITURE IS T REATED AS A CONFERRING CAPITAL ADVANTAGE, NECESSARILY THEY ARE DEPRECIABLE . THE APPELLANT CLAIMS FOR DEPRECIATION OF 'KNOW-HOW', 'PATENTS', ' COPYRIGHTS', 'TRADEMARKS', 'LICENSES', 'FRANCHISES' OR OTHER BUS INESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE BEING INTANGIBLE ASSETS AC QUIRED PM PR AFTER 1 ST DAY OF APRIL 1998. ARGUING BY ANALOGY, LEARNED COUN SEL FOR THE APPELLANT RELIED UPON THE JUDGMENT OF THE SUPREME COURT IN TE CHNO SHARES & STOCKS LTD. (SUPRA) WHERE THE ISSUE WAS WHETHER THE CONTENTION OF THE 7 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. ASSESSEE THAT IT COULD CLAIM DEPRECIATION ON THE BO MBAY STOCK EXCHANGE MEMBERSHIP CARD HELD BY IT ON THE PLEA THAT IT WAS A LICENSE OR 'BUSINESS COMMERCIAL RIGHT OF SIMILAR NATURE' WA S UPHELD. THE APPELLANT ALSO RELIED UPON THE DECISION OF THIS COU RT IN HINDUSTAN COCO COLA BEVERAGES P. LTD. (SUPRA) AND THE JUDGMENT OF THE KERALA HIGH COURT IN B. RAVINDRAN PILLAI V. CIT 332 ITR 531 (KE R). AS WOULD BE EVIDENT FROM SECTION 32(1 )(II), DEPRECIATION CAN A LLOWED IN RESPECT OF INTANGIBLE ASSETS. PARLIAMENT HAS SPELT-OUT THE NAT URE SUCH ASSETS BY EXPRESS REFERENCE TO KNOW-HOW', PATENTS', COPYRI GHTS, TRADEMARKS', LICENSES' AND FRANCHISES'. SO FAR AS PATENTS, COPYRIGHT TRADEMARKS, LICENSES AND FRANCHISE ARE CONCERNED, T HOUGH THEY ARE INTANGIBLE ASSETS, THE LAW RECOGNIZES THROUGH VARIO US ENACTMENTS THAT SPECIFIC INTELLECTUAL PROPERTY RIGHTS FLOW FROM THE M. LICENSES ARE DERIVATIVE AND OFTEN ARE THE MEANS OF CONFERRING SU CH INTELLECTUAL PROPERTY RIGHTS. THE ENJOYMENT OF SUCH INTELLECTUAL PROPERTY RIGHT IMPLIES EXCLUSION OF OTHERS, WHO DO NOT OWN OR HAVE LICENSE TO SUCH RIGHTS FROM USING THEM IN ANY MANNER WHATSOEVER. SI MILARLY, IN THE MATTER OF FRANCHISES AND KNOW-HOW, THE PRIMARY BRAN D OR INTELLECTUAL PROCESS OWNER OWNS THE EXCLUSIVE RIGHT TO PRODUCE R ETAIL AND DISTRIBUTE THE PRODUCTS AND THE ADVANTAGES FOLLOWING FROM SUCH BRAND OR INTELLECTUAL PROCESS OWNER, BUT FOR THE GRANT OF SU CH KNOW-BOW RIGHTS OR FRANCHISES. IN OTHER WORDS, OUT OF THESE SPECIES OF INTELLECTUAL PROPERTY LIKE RIGHTS OR ADVANTAGES LEAD TO THE DEFINITIVE AS SERTION OF A RIGHT IN REM. THE DECISION OF THIS COURT IN HINDUSTAN COCO C OLA BEVERAGES P. LTD. ITA-492-72 PAGE 11 (SUPRA) AND THAT OF THE KERALA H IGH COURT IN B. RAVINDRAN PILLAI (SUPRA) UNDERLINED THAT GOODWILL I S ALSO A SPECIES OF DEPRECIABLE RIGHT WHICH CAN CLAIM THE BENEFIT OF SE CTION 32. THOSE DECISION WERE BASED ON THE RULING OF THE SUPREME CO URT IN CIT V. B.C. SRINIVASA SETTY 1981 (128) ITR 294 (SC) AND SUBSEQU ENT CASES WHICH HAVE RULED THAT GOODWILL IS A DEPRECIABLE CAPITAL A SSET. SO FAR AS THE DECISION IN TECHNO SHARES & STOCKS LTD. (SUPRA) IS CONCERNED, THE SUPREME COURT CLEARLY LIMITED ITS HOLDING THAT THE RIGHT TO MEMBERSHIP OF STOCK EXCHANGE IS IN THE NATURE OF 'ANY OTHER BUSINE SS OR COMMERCIAL RIGHT' WHICH WAS AN INTANGIBLE ASSET AS IS EVIDENT FROM THE FOLLOWING OBSERVATIONS: BEFORE CONCLUDING WE WISH TO CLARIFY THAT OUR PRESE NT JUDGMENT IS STRICTLY CONFIRMED TO THE RIGHT TO MEMBERSHIP CONFE RRED UPON THE MEMBERSHIP UNDER THE BSE MEMBERSHIP CARD DURING THE RELEVANT ASSESSMENT YEARS. WE HOLD THAT THE SAID RIGHT TO ME MBERSHIP IS 'BUSINESS OR COMMERCIAL ACTIVITY' WHICH GIVES A NON -DEFAULTING 8 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. CONTINUING MEMBERSHIP AND RIGHT TO ACCESS EXCHANGE A ND TO PARTICIPATE THEREIN AND IN THAT SENSE IT IS A LICEN SE OR AKIN TO A LICENSE, IN TERMS OF SECTION 32(1)(II).' 12. IT IS, THEREFORE, APPARENT THAT THE RULING IN T ECHNO SHARES & STOCKS LTD. (SUPRA) WAS CONCERNED WITH AN EXTREMELY LIMITE D CONTROVERSY, I.E. DEPRECIABILITY OF STOCK EXCHANGE MEMBERSHIP EXCHANG E. THIS COURT OBSERVES THAT SUCH NATURE WAS HELD TO BE AKIN TO A LICENSE BECAUSE IT ENABLE THE MEMBER, FOR THE DURATION OF THE MEMBERSH IP, TO ACCESS THE STOCK EXCHANGE. UNDOUBTEDLY, IF CONFERRED A BUSINESS ADVANTAGE AND WAS AN INTANGIBLE ASSET. THE QUESTION HERE, HOWEVER, I S WHETHER A NON- COMPETE RIGHT OF THE KIND ACQUIRED BY THE ASSESSEE AGAINST L&T FOR SEVEN YEARS AMOUNTS TO DEPRECIABLE TANGIBLE ASSET. AS DISCUSSED EARLIER, EACH OF THE SPECIES OF RIGHTS SPELT-OUT IN SECTION 32(1 )(II), I.E. KNOW-HOW, PATENT, COPYRIGHT, TRADEMARK, OR FRANCHISE AS OR ANY OTHER RIGHT OF A SIMILAR KIND WHICH CONFERS A BUSINESS OR COMMERCIAL OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF SIMILAR NATURE HAS TO BE 'INTAN GIBLE ASSET'. THE NATURE OF THESE RIGHTS MENTIONED CLEARLY SPELL-OUT AN ELEM ENT OF EXCLUSIVITY WHICH ENSURES TO THE ASSESSEE AS A SEQUEL TO THE OWNERSHI P. IN OTHER WORDS, BUT FOR THE OWNERSHIP OF THE INTELLECTUAL PROPERTY OR KNOW-HOW OR LICENSE OR FRANCHISE, IT WOULD BE HONBLE TO EITHER ACCESS THE ADVANTAGE OR ASSERT THE RIGHT AND THE NATURE OF THE RIGHT MENTIONED OR SPELT-OUT IN THE PROVISION AS AGAINST THE WORLD AT LARGE OR IN LEGAL PARLANCE 'IN REM'. HOWEVER, IN THE CASE OF A NON-COMPETITION AGREEMENT OR COVENANT, THE ADVANTAGE IS A RESTRICTED ONE, IN POINT OF TIME. IT DOES NOT NECESSARILY - AND NOT IN THE FACTS OF THIS CASE, CONFER ANY EXCLU SIVE RIGHT TO CARRY-ON THE PRIMARY BUSINESS ACTIVITY. THE RIGHT CAN BE ASSERTE D IN THE PRESENT INSTANCE ONLY AGAINST L&T AND IN A SENSE, THE RIGHT 'IN PERSONAM'. INDEED, THE 7 YEARS PERIOD SPELT-OUT BY THE NON-COM PETING COVENANT BRINGS THE ADVANTAGE WITHIN THE PUBLIC POLICY EMBED DED IN SECTION 21 OF THE CONTRACT ACT, WHICH ENJOINS A CONTRACT IN RESTR AINT OF TRADE WOULD OTHERWISE BE VOID. ANOTHER WAY OF LOOKING AT THE IS SUE IS WHETHER SUCH RIGHTS CAN BE TREATED OR TRANSFERRED - A PROPOSITIO N FULLY SUPPORTED BY THE CONTROLLING OBJECT CLAUSE, I.E. INTANGIBLE ASSET. EV ERY SPECIES OF RIGHT SPELT- OUT EXPRESSLY BY THE STATUTE - I.E. OF THE INTELLEC TUAL PROPERTY RIGHT AND OTHER ADVANTAGES SUCH AS KNOW-HOW, FRANCHISE, LICEN SE ETC. AND EVEN THOSE CONSIDERED BY THE COURTS, SUCH AS GOODWILL CA N BE SAID TO BE ALIENABLE. SUCH IS NOT THE CASE WITH AN AGREEMENT N OT TO COMPETE WHICH IS PURELY PERSONAL. AS A CONSEQUENCE, IT IS HELD TH AT THE CONTENTIONS OF THE ASSESSEE ARE WITHOUT MERIT; THIS QUESTION TOO IS AN SWERED AGAINST THE APPELLAN T AND IN FAVOUR OF THE REVENUE. 9 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. 12. FURTHER, THE TRIBUNAL (SUPRA) IN PRINCIPLE ALLO WED THE DEPRECIATION ON GOODWILL FOLLOWING THE DECISION OF THE HONBLE SUPREM E COURT IN THE CASE OF SMITH SECURITIES LTD (2012) 348 ITR 302 (SC) AND OTH ER DECISIONS. THE RELEVANT EXTRACT OF THE ORDER OF THE TRIBUNAL (SUPRA) IS REP RODUCED AS UNDER: 7.4 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT IN THE CASE OF SMIFS SECURITIES LTD. (SUP RA), THE HONBLE SUPREME COURT HAS DECIDED A QUESTION OF LAW RAISED AS UNDER: QUESTION NO.[B]: 'WHETHER GOODWILL IS AN ASSET WITHIN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961, AND WHETHER DEPRECIATION ON GOODWIL L IS ALLOWABLE UNDER THE SAID SECTION?' ANSWER: IN THE PRESENT CASE, THE ASSESSEE HAD CLAIMED DEDUC TION OF RS.54,85,430/- AS DEPRECIATION ON GOODWILL. IN THE COURSE OF HEARING, THE EXPLANATION REGARDING ORIGIN OF SUCH GOODWILL WAS GIVEN AS UNDER: 'IN ACCORDANCE WITH SCHEME OF AMALGAMATION OF YSN S HARES & SECURITIES (P) LTD WITH SMIFS SECURITIES LTD (DULY SANCTIONED BY H ON'BLE HIGH COURTS OF BOMBAY AND CALCUTTA) WITH RETROSPECTIVE EFFECT FROM 1ST AP RIL, 1998, ASSETS AND LIABILITIES OF YSN SHARES & SECURITIES (P) LTD WERE TRANSFERRED TO AND VEST IN THE COMPANY. IN THE PROCESS GOODWILL HAS ARISEN IN THE BOOKS OF THE COMPANY.' IT WAS FURTHER EXPLAINED THAT EXCESS CONSIDERATION PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSETS ACQUIRED OF YSN SHARES AND SECU RITIES PRIVATE LIMITED [AMALGAMATING COMPANY] SHOULD BE CONSIDERED AS GOOD WILL ARISING ON AMALGAMATION. IT WAS CLAIMED THAT THE EXTRA CONSIDE RATION WAS PAID TOWARDS THE REPUTATION WHICH THE AMALGAMATING COMPANY WAS ENJOY ING IN ORDER TO RETAIN ITS EXISTING CLIENTELE. THE ASSESSING OFFICER HELD THAT GOODWILL WAS NOT AN ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INCOME TAX AC T, 1961 [ACT, FOR SHORT]. WE QUOTE HEREIN BELOW EXPLANATION 3 TO SECTION 32(1 ) OF THE ACT: 'EXPLANATION 3.- - FOR THE PURPOSES OF THIS SUB-SECTION, THE EXPRESS IONS 'ASSETS' AND 'BLOCK OF ASSETS' SHALL MEAN-- [A] TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE; 10 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. [B] INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE.' EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' SH ALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LI CENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE. A READING THE WORDS 'ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE' IN CLAUSE (B) OF EXPLANATION 3 INDICATES THAT GOODWILL WOULD FALL UNDER THE EXPR ESSION 'ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE'. THE PRINCIPL E OF EJUSDEM GENERIS WOULD STRICTLY APPLY WHILE INTERPRETING THE SAID EXPRESSI ON WHICH FINDS PLACE IN EXPLANATION 3(B). IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT 'GOOD WILL' IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE ACT. 7.4.1 IN THE CASE OF AVERA T & D INDIA LTD (SUPRA) , HONBLE JURISDICTIONAL HIGH COURT, HELD THE BUSINESS INFORMATION, BUSINESS RECORDS, CO NTRACTS, SKILLED EMPLOYEE, KNOW-HOW ETC AS BUSINESS AND COMMERCIAL RIGHTS ELIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT , HOWEVER THE ISSUE OF ELIGIBILITY OF GOODW ILL FOR DEPRECIATION WAS NOT DECIDED. REGARDING GOODWILL, THE HONBLE COURT OBSERVED AS U NDER: 15. IN VIEW OF THE ABOVE, IT IS NOT NECESSARY TO D ECIDE THE ALTERNATIVE SUBMISSION MADE ON BEHALF OF THE ASSESSEE THAT GOODWILL PER SE IS E LIGIBLE FOR DEPRECIATION UNDER SECTION 32(1)(II) OF THE ACT. IN THE CIRCUMSTANCES, THE SUB STANTIAL 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. 7.4.2 IN THE CASE OF TRIUNE ENERGY SERVICES PRIVAT E LIMITED (SUPRA), THE TRIBUNAL HELD THAT NO CREDIBLE MATERIAL HAD BEEN BROUGHT IN THE V ALUATION REPORT SUBMITTED BY THE ASSESSEE ON THE BASIS OF WHICH A SPECIFIC VALUATION COULD BE ASCRIBED TO ANY SPECIFIC INTANGIBLE ASSETS AND THEREFORE HELD THAT THE AO AN D THE CIT-(A) WERE JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS NOT ENTITLED TO DEPRECIATION ON TECHNICAL KNOWHOW, VALUATION OF BUSINESS AND NON-COMPETE FEE MENTIONED IN THE REPOR T. IN RESPECT OF THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THE ENTIRE SUM OF RS.40,58,75,529 /-PAID TOWARDS INTANGIBLE BE CONSIDERED AS GOODWILL AND THE TRIBUNAL FOLLOWING THE DECISION OF THE SUPREME COURT IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. (SUPRA) UPHELD THAT ASSES SEES CONTENTION THE DEPRECIATION COULD BE CLAIMED OF THE GOODWILL, BUT REMANDED THE MATTER FOR PURPOSE OF THE VALUATION OF THE GOODWILL. THE HONBLE HIGH COURT AFTER CONSIDERING THE ARGUMENTS OF THE RIVAL PARTIES UPHELD THE ELIGIBILITY OF GOODWILL FOR DEPRECIATION WHICH IS ALLOWABLE UNDER SECTION 32(1)(II) OF THE ACT IN VIEW OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SMIFS SECURITIES LTD. (SUPRA). THE HONBLE HIGH COURT FURTHER OBSERVED TH AT IN THE BUSINESS IDENTIFICATION SCHEDULE APPENDED TO BUSINESS TRANSFER AGREEMENT A PART FROM THE TANGIBLE ASSETS ALSO INCLUDED CONTRACTS, BUSINESS RECORDS AND KNOW-HOW, EMPLOYEES AND GOODWILL OF THE TRANSFEROR COMPANY AND THE GOODWILL INCLUDED THE GO ODWILL IN RELATION TO THE NAME ASSOCIATED TO THE BUSINESS. REGARDING THE GOODWIL L, THE HONBLE HIGH COURT HELD AS UNDER: 11 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. 13. GOODWILL IS INTANGIBLE ASSET PROVIDING A COMPE TITIVE ADVANTAGE TO AN ENTITY. THIS INCLUDES A STRONG BRAND, REPUTATION, A COHESIVE HUM AN RESOURCES, DEALER NETWORK, CUSTOMER BASE ETC. THE EXPRESSION GOODWILL SUBSUM E WITHIN IT A VARIETY INTANGIBLE BENEFITS THAT ARE REQUIRED WHEN A PERSON ACQUIRES A BUSINESS OF ANOTHER IS A GOING CONCERN. 7.4.3 IN THE LIGHT OF ABOVE FACTS AND CIRCUMSTANCE S, THE HONBLE HIGH COURT ACCEPTED THE CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE T HAT THE CONSIDERATION PAID BY THE ASSESSEE IN EXCESS OF ITS VALUE OF TANGIBLE ASSETS WAS RIGHTLY CLASSIFIED AS GOODWILL. 7.4.4 IN THE LIGHT OF ABOVE DECISIONS, WHEN WE LOOK AT THE FACTS OF THE INSTANT CASE WE FIND THAT IN THIS CASE, IN THE BUSINESS TRANSFER AG REEMENT (BTA) THERE IS NO MENTION OF GOODWILL. FURTHER, THE UNIT OF M/S KOAL, WHICH WAS ACTING AS A AGENT FOR SALE OF ELECTRONIC FRANKING MACHINES ETC OF M/S PITNEY BOWE S INC, USA, IN INDIA AND NEPAL HAS BEEN TRANSFERRED TO THE ASSESSEE. IT WAS THE MACHIN ES OF M/S PITNEY BOWES INC., USA WHICH ARE APPROVED BY THE DEPARTMENT OF POST DUE TO THEIR TECHNICAL COMPETENCY. ALL THE INTELLECTUAL PROPERTY RIGHTS IN THOSE MACHINES WERE LIED WITH M/S PITNEY BOWES INC. USA. THUS, IT WAS THE BRAND NAME OF THE PITNEY BOWES O N WHICH M/S KOAL WAS FLOATING. IN THE BUSINESS TRANSFER AGREEMENT (BTA) WHICH IS AVAI LABLE ON PAGES 1-48 OF THE VOLUME 1A OF THE PAPER BOOK, ON PAGE 12 , A LIST OF TRANSF ERRED ASSETS IS MENTIONED WHICH INCLUDED REAL PROPERTY LEASED, TANGIBLE ASSETS LIKE FURNITURE EQUIPMENTS MACHINERY ETC, CONTRACT LICENSE AGREEMENTS ETC, INVENTORIES OF THE SELLER IN EXISTENCE, GOVERNMENT AUTHORIZATIONS, COMPUTER HARDWARE AND PROPRIETARY S OFTWARE, CUSTOMER AND VENDOR LIST, BUSINESS KNOW-HOW, RIGHTS OF THE SELLER UNDER SALES AND PURCHASE ORDERS, TRANSFERRED EMPLOYEE AND TRANSFERRED RETAILERS, ALL ADVANCES RE CEIVED BY THE SELLER FROM ITS CUSTOMERS, ALL EARNEST MONEY DEPOSITS ETC. THE ASSE SSEE HAS GOT VALUATION OF GOVERNMENT AUTHORIZATIONS AND NON-COMPETE FEE FROM M/S DELOITTE HASKINS AND SELLS. SAID VALUATION REPORT IS AVAILABLE ON PAGE 431 TO 4 51 OF THE VOLUME 1B OF PAPER BOOK. THE VALUER HAS ASSIGNED VALUE TO GOVERNMENT AUTHORI ZATIONS AT RS.3.63 CRORES AND VALUE TO NON-COMPETE AGREEMENTS AT RUPEES 4.83 CROR ES, HOWEVER, NO VALUE WAS ASSIGNED TO OTHER INTANGIBLE ASSETS. 7.4.5 IN VIEW OF THE DECISION CITED ABOVE, WE ARE OF THE VIEW THAT LIST OF TRANSFERRED ASSET INCLUDED BUSINESS KNOW-HOW, CUSTOMER AND VEND OR LIST ETC WHICH ARE BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE AS SPECIFIED IN 32(1)(II) OF THE ACT, WHICH CONSTITUTE PART OF THE GOODWILL OF THE BUSINESS, TRANSFERRED AS GOING CONCERN TO THE ASSESSEE. SINCE IN THE CASE TANGIBLE ASSETS ALONGWITH OTHER B USINESS/COMMERCIAL RIGHTS, HAVE BEEN TRANSFERRED TO THE ASSESSEE, THE VALUE OF GOODWILL SHOULD BE COMPUTED BY REDUCING THE VALUE OF ALL LIABILITIES, THE TANGIBLE ASSETS , GOVERNMENT AUTHORIZATIONS VALUED BY THE VALUER AND NON-COMPETE FEE VALUED BY THE VALUER, OU T OF THE SLUMP SALE CONSIDERATION AND THEN DEPRECIATION SHOULD BE ALLOWED AT THE RAT E PRESCRIBED FOR THE INTANGIBLE ASSETS UNDER SECTION32(1)(II) OF THE ACT. 12 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. 13. THE DEPRECIATION ON GOODWILL IN ASSESSMENT YEARS 2005-06 AND 2006-07 WAS HOWEVER NOT ALLOWED IN VIEW OF THE CLAIM MADE IN RE TURN FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT. THE SAID CLAIM WAS HOWEVER ALLOWED WITH THE DIRECTION TO THE ASSESSING OFFICER FOR COMPUTAT ION OF SUCH DEPRECIATION IN ASSESSMENT YEARS 2007-08 TO 2009-10 OBSERVING AS UN DER: 16. THE GROUND NO. 3 RAISED IN THE ABOVE APPEALS H AS ALSO BEEN DECIDED IN ITA NO. 289/DEL/2013 FOR ASSESSMENT YEAR 2005-06. I N THE SAID APPEAL, THOUGH THE DEPRECIATION ON GOODWILL IS ALLOWED IN PRINCIPL E WITH THE DIRECTION TO COMPUTE THE AMOUNT OF GOODWILL, HOWEVER, THE CLAIM OF DEPRE CIATION ON GOODWILL IN THE ASSESSMENT YEAR 2005-06 WAS MADE IN FIRST APPELLATE PROCEEDINGS ARISING OUT OF REASSESSMENT PROCEEDING, THUS, DENIAL OF CLAIM BY T HE LD. CIT-(A) WAS UPHELD. THE ASSESSMENT YEARS INVOLVED IN PRESENT APPEALS AR E FROM ASSESSMENT YEAR 2007-08 TO ASSESSMENT YEAR 2009-10 AND NO REASSESSM ENT PROCEEDINGS ARE INVOLVED IN THESE ASSESSMENT YEARS, AND THEREFORE, THE DEPRECIATION ON GOODWILL IS ALLOWED TO THE ASSESSEE SUBJECT TO OUR FINDINGS IN ITA NO. 289/DEL/2013. ACCORDINGLY, THE GROUNDS OF APPEAL ARE ALLOWED FOR STATISTICAL PURPOSE. 14. IN THE PRESENT APPEALS FILED BEFORE US, ASSESSM ENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT AND THEREFORE ISSUE IN DI SPUTE OF DEPRECIATION ON GOODWILL IN PRESENT APPEALS IS COVERED BY THE DECISI ON OF THE TRIBUNAL IN ASSESSMENT YEARS 2007-08 TO 2009-10. SINCE IN THE A PPEALS BEFORE US ONLY ABOVE TWO ISSUES OF DEPRECIATION ON NON-COMPETE FEE AND DE PRECIATION ON GOODWILL HAVE BEEN RAISED BY THE ASSESSEE, THUS RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL (SUPRA), ALL THE G ROUNDS RAISED IN APPEALS ARE ALSO DECIDED MUTATIS MUTANDIS. 13 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI. 16. IN RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES ORDER PRONOUNCED IN THE OPEN COURT ON 30/5/2018. SD/- SD/- AMIT SHUKLA O.P.KANT (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: 30.05.2018 POOJA/- COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 14 ITA NO-6119/DEL/2016 & 3 OTHERS. PITNEY BOWES INDIA PVT. LTD., NEW DELHI.