M/S. INTIME SPECTRUM REGISTRY LTD, MUMBAI V. THE ACIT 10(3), MUMBAI

ITA 5592/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7461 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 09-02-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 04-09-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: C P PATHAK
• Assessee Lawyers: FIROZE ANDYARUJINA; R DEVARAJAN
• Keywords: Depreciation; Opportunity of being heard; Revenue expenditure; TDS; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI B. RAMAKO TAIAH ,(AM) ITA NO.2285/MUM/2008 ASSESSMENT YEAR : 2004-05 ITA NO.5592/MUM/2008 ASSESSMENT YEAR : 2005-06 INTIME SPECTRUM REGISTRY LIMITED C-13, PANNALAL SILK MILLS COMPOUND LBS MARG, BHANDUP(W) MUMBAI-400 078. ..( APPELLANT ) P.A. NO. (AAACI 4998 N) VS. ASSTT. COMMISSIONER OF INCOME TAX -10(3) 4 TH FLOOR, AAYAKAR BHAVAN M.K. ROAD MUMBAI-400 020. ..( RESPONDENT ) APPELLANT BY : SHRI FIROZE ANDYARUJINA AND SHRI R. DEVARAJAN RESPONDENT BY : SHR I C.P. PATHAK O R D E R PER D.K. AGARWAL (JM). THESE TWO APPEALS PREFERRED BY THE ASSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDERS DATED 28.1.2008 AND 27.6. 2008 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 RESPECTIVELY. SINCE FACTS ARE IDENTICAL AND GROUNDS ARE COM MON BOTH THE APPEALS ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 2 2. FOR THE SAKE OF BREVITY THE BRIEF FACTS EXTRACTED FR OM ITA NO.2285/M/08 FOR ASSESSMENT YEAR 2004-05 ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS AS A REGISTRAR AND TRA NSFER AGENTS. THE RETURN WAS FILED DECLARING A TOTAL INCOME OF RS.55, 22,646/-. DURING THE COURSE OF ASSESSMENT IT WAS INTERALIA OBSERVED BY THE AO THAT THE ASSESSEE HAS CLAIMED DEPRECIATION ON GOODWILL AMO UNTING TO RS.6,47,147/- BEING 20% OF RS.25,88,586/-. ACCORDING TO THE AO AS PER PROVISIONS OF SECTION 32, DEPRECIATION IS NOT ALLOWAB LE. HENCE, THE ASSESSEE WAS ASKED TO SUBSTANTIATE ITS CLAIM. IN RESPONSE THE ASSESSEE FILED ITS EXPLANATION DATED 14.9.2006 CONTENDIN G THAT THE GOODWILL STATED IN THE BOOKS OF OUR CLIENT IS NOT SELF G ENERATED ONE, BUT WAS A RESULT OF TAKING OVER THE BUSINESS OF AOK IN HOUSE SECURITIES LIMITED IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEA R 2002-03. REGARDING DEPRECIATION ON GOODWILL, WE INVITE YOUR ATTENTION TO SUB SECTION (B) OF SECTION 2(11) OF THE INCOME TAX ACT, 1961, WHICH WAS AMENDED WITH EFFECT FROM APRIL 1, 1999. THE SECTION ST ATES THAT THE TERM BLOCK OF ASSETS MEANS A GROUP OF ASSETS FALLING WITH IN A CLASS OF ASSETS, MEANING (A) TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PLANT OR FURNITURE; (B) INTANGIBLE ASSETS, BEING KNO W-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OR SIMILAR NATURE. THE EFFECT OF TH IS AMENDMENT IS THAT DEPRECIATION AT RATES APPLICABLE IN THE RELEVANT FINANCE ACT IS ALSO ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 3 AVAILABLE ON INTANGIBLE ASSETS. THUS, DEPRECIATION ON GOODWILL AS PER BLOCK 19 HAS BEEN CLAIMED BY OUR CAPTIONED CLIENT AND I S ALSO ALLOWABLE. WITHOUT PREJUDICE TO OUR CLAIM FOR DEPRECIATION, WE WO ULD LIKE TO POINT OUT THAT IN CASE DEPRECIATION IS NOT GRANTED TO OUR CLIE NTS, AMORTIZATION OF THE GOODWILL AMOUNT IS TO BE GRANTED TO OUR CLIENT S. HOWEVER, THE AO DID NOT ACCEPT THE ASSESSEES CLAIM. THE AO ANALYSED THE PROVISIONS OF SECTION 32(1) AND CONCLUDED THA T THE GOODWILL IS NOT AN ASSET AS DEFINED IN CLAUSE (II) OF SE CTION 32(1) OF THE ACT. THE AO FURTHER OBSERVED THAT THE ASSESSEE COMPANY H AS NOWHERE ESTABLISHED THAT IT HAS ACQUIRED KNOWHOW, PATE NTS, COPYRIGHTS, TRADEMARKS ETC. WHAT THE COMPANY HAS PAID FOR , SIMPLICITOR IS AN AMOUNT AS A CONSIDERATION FOR ACQUIRING THE CLIENTE LE OF M/S.AOK IN HOUSE SECURITIES LTD., AS GOODWILL. THIS DOES NOT SIGN IFY ACQUISITION OF ANY KNOWHOW, PATENTS, COPYRIGHTS, TRADEMARKS, ETC. OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. HENCE, THE ASSESSEE IS NOT ENTITLED TO CLAIM OF DEPRECIATION AND FOR THE SA ME REASONS HE ALSO REJECTED THE ALTERNATIVE PLEA OF THE ASSESSEE COMPAN Y FOR CLAIM OF AMORTIZATION OF THE GOODWILL AMOUNT . THE AO A FTER MAKING SOME OTHER DISALLOWANCE COMPLETED THE ASSESSMENT AT AN INCOME OF RS.62,07,800/- VIDE ORDER DATED 29.9.2006 PASSED U/S.14 3(3) OF THE INCOME TAX ACT, 1961 (THE ACT). ON APPEAL, THE LD. CI T(A) WHILE ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 4 RELYING ON THE DECISION OF THE TRIBUNAL IN BHARATBHAI J. VYAS VS. ITO (2005) 279 ITR (AT) 41(AHD.), HELD THAT GOODWILL , AS APPEARING IN THE BOOKS OF THE ASSESSEE CANNOT BE CLASSIFIED IN THE SAME CA TEGORY AS INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGH TS OF SIMILAR NATURE, WITHIN THE MEANING OF EXPLANATION 3 OF SECTION 32(1) AND ACCORDINGLY UPHELD THE ORDER OF THE AO IN DISALLOW ING THE CLAIM OF DEPRECIATION ON GOODWILL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE ASSESSEE IS IN APPEAL BEFORE US TAKING FOLLOWING EFFECTIVE GROUND OF APPEAL . THE CIT(A) HAS ERRED IN LAW AND IN FACTS IN DISALLOWING THE DEPRECIATION AMOUNTING TO RS.6,47,1 47/- ON GOODWILL. 4. VIDE LETTER DATED 4.2.2010 THE ASSESSEE HAS ALSO TAKEN FOLLOWING ADDITIONAL GROUNDS OF APPEAL: 1. WITHOUT PREJUDICE AND IN THE ALTERNATIVE, THE AMOUNT PAID FOR ACQUIRING THE REGISTRY BUSINESS AND ITS CLIENTS IS IN THE NATURE OF REVENUE EXPENDITURE AND OUGHT TO BE ALLOWED UNDER SECTION 37 OF THE INCOME TAX AC T, 1961. 2. THE APPELLANT HAS PAID COMPENSATION ESSENTIALL Y FOR TAKING OVER THE CLIENTS OF THE VENDOR AND THERE FORE THIS ACQUISITION OF BUSINESS BEING IN THE COURSE OF BUSI NESS OUGHT TO BE ALLOWED AS A REVENUE EXPENDITURE. 5. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE SUBMITS THAT THE ADDITIONAL GROUND BEING PURELY A LEGAL ISSUE , GOES TO THE ROOT ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 5 OF THE MATTER, HENCE, THE SAME BE ADMITTED AND IN SUPP ORT, THE REFERENCE WAS ALSO MADE TO THE DECISION IN JUTE CORPORA TION OF INDIA VS. CIT (1991) 187 ITR 688(SC). HE FURTHER SUBMITS THAT THE ASSESSEE IS REGISTERED AS A REGISTRAR AND SHARE TRANSFER AGENT UND ER SEBI RULE AND REGULATIONS. AOK IN HOUSE SECURITIES LTD. IS A COMPAN Y IN NEW DELHI WHEREBY IT WAS AGREED TO ACQUIRE THE REGISTRY BU SINESS OF IN HOUSE SHARE REGISTRY, WHICH WAS A DIVISION OF AOK IN HOU SE SECURITIES LTD. OTHER BUSINESSES OF AOK IN HOUSE SECURITIES L TD. AND AOK IN HOUSE SECURITIES LTDS EXISTENCE CONTINUES. THE CO MPENSATION FOR TAKE OVER OF THE BUSINESS IS ESSENTIALLY THE TAKE OVE R OF ALL EXISTING CLIENTS AND THIS IS WITH A VIEW TO RUN THE BUSINESS MORE E FFICIENTLY AS WELL AS HAVE EXPANSION AND INTEGRATION OF THE BUSINESSES. HENCE THE SAME BE ALLOWED AS A REVENUE EXPENDITURE. FURTHER, COM PENSATION PAID FOR ACQUIRING BUSINESS AND CLIENTS IS ON REVENUE ACCOU NT AND HENCE OUGHT TO BE TREATED AS REVENUE EXPENDITURE. T HE LD. COUNSEL FOR THE ASSESSEE AFTER REFERRING TO CERTAIN CLAUSES NAMELY CLAUSE (C) ON PAGE-1, 1(G), 2.1, 4.3, 4.7, 4.9 OF MEMORANDUM OF U NDERSTANDING (MOU) DATED 21.03.2002 BETWEEN ASSESSEE AND AOK IN HOUSE SECURITIES LTD. SUBMITS THAT THE COMPENSATION WAS PAID FO R ACQUIRING BUSINESS AND CLIENTS OF AOK IN HOUSE SECURITIES LTD. AS PER ANNEXURE A, B & C OF THE MOU ON WHICH THE ASSESSEE IS ENTITLED TO THE DEPRECIATION OR IN ALTERNATIVE THE SAME MAY BE TREATE D AS REVENUE ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 6 EXPENDITURE. HOWEVER, HE ADMITS THAT THE ABOVE MOU, WITH ANNEXURES AND DETAILS OF PAYMENT WAS NOT FILED BEFORE THE AO O R THE LD. CIT(A). HE THEREFORE SUBMITS THAT THE ASSESSEES CLAIM OF DEPRECIATIO N ON GOODWILL BE ALLOWED OR THE PAYMENT MADE BY THE ASSESSEE AS COMPENSATION FOR ACQUIRING BUSINESS BE ALLOWED AS REVENUE EXPENDITURE. IN ALTERNATIVE, HE SUBMITS THAT THE ISSU E MAY BE SET ASIDE TO THE FILE OF THE AO TO EXAMINE THE ISSUE AFRESH IN T HE LIGHT OF THE MATERIAL FILED BEFORE TRIBUNAL AND PLEA TAKEN. 6. ON THE OTHER HAND, THE LD. DR WHILE RELYING ON T HE ORDER OF THE AO AND THE LD. CIT(A), FURTHER SUBMITS THAT HE HAS NO OBJECTION IF THE ISSUE IS SET ASIDE TO THE FILE OF THE AO. 7. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEE HAS NOT FILED MOU DATED 21.3.2 002 AND ITS ANNEXURES BEFORE THE AO OR THE LD. CIT(A). WE FURT HER FIND THAT THE ASSESSEE HAS RAISED ADDITIONAL GROUND CLAIMING THAT IN ALT ERNATIVE THE AMOUNT PAID FOR ACQUIRING THE REGISTRY BUSINESS IS IN TH E NATURE OF REVENUE EXPENDITURE AND OUGHT TO BE ALLOWED AS REVE NUE EXPENDITURE U/S.37 OF THE ACT. SINCE THE ABOVE MATERIAL WHICH GOE S TO THE ROOT OF THE MATTER WAS NOT FILED BEFORE THE AO OR THE LD. CI T(A), THEREFORE, IN THE INTEREST OF JUSTICE WE AFTER ADMITTING THE SAME, CO NSIDER IT FAIR AND ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 7 REASONABLE THAT THE MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER. THIS VIEW ALSO FINDS SUPPORT FROM THE JUDGMENT OF THE HONBLE M.P. HIGH COURT IN CIT VS. TOLLARAM HASSOMAL (2008) 298 ITR 22(MP) WHEREIN IT HAS BEEN HELD( HEADNOTE) : HELD, THAT THE TRIBUNAL HAVING PERMITTED THE ASSESSEE TO RAISE FOUR ADDITIONAL GROUNDS TREATING THEM TO BE LEGAL GROUNDS IN APPEAL FOR THE FIRST TIME, SH OULD HAVE SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) FOR DECIDING THE APPEAL AFRESH ON ALL THE ISSUES INCLUDING ON THOSE FOUR GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL BEFORE THE TRIBUNAL RATHE R THAN TO DECIDE THE ADDITIONAL GROUNDS ON THE MERITS FOR THE FI RST TIME BY ITSELF. ACCORDINGLY , THE ORDER PASSED BY THE REVENUE AUTHORITI ES IS SET ASIDE AND THE MATTER IS RESTORED BACK TO THE FILE OF THE A.O . WHO SHALL DECIDE THE SAME INCLUDING THE OTHER GROUNDS AFRESH AND ACCORDIN G TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO T HE ASSESSEE. THE GROUNDS INCLUDING ADDITIONAL GROUND TAKEN BY THE ASSESSE E ARE, THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.5592/M/2008 (ASSESSMENT YEAR 2005-06): 8. IT HAS BEEN AGREED BY THE PARTIES THAT THE FACTS, G ROUNDS AND PLEA TAKEN BY THEM ARE IDENTICAL TO THE FACTS, GROUNDS AND PLEA IN THE APPEAL FOR THE ASSESSMENT YEAR 2004-05, HENCE, IN THE L IGHT OF OUR FINDING RECORDED IN PARA -7 OF THIS ORDER THE ORIGINA L GROUNDS AND THE ITA NO.2285/& 5592/M/8 A.Y:04-05 & 05-06 8 ADDITIONAL GROUNDS TAKEN BY THE ASSESSEE FOR THIS YEAR AR E ALSO SET ASIDE TO THE FILE OF THE AO. WE HOLD AND ORDER ACCORD INGLY. 9. IN THE RESULT, ASSESSEES APPEALS STAND PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 4.3.2010. SD/- SD/- ( B. RAMAKOTAIAH ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 4.3.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 9.2.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 9.2.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 4.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 5.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER