DCIT CORPORATE CIRCLE 4 (1), CHENNAI V. M/S MACMILLAN PUBLISHERS INDIA PVT LTD, CHENNAI

ITA 568/CHNY/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2460 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 16-02-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: T SURYANARAYANA
• Keywords: Depreciation; Wholly owned subsidiary; Scheme of amalgamation

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! .#$#%, ' !( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ./ ITA NO.568/CHNY/2018 % *% / ASSESSMENT YEAR : 2012-13 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI - 600 034. V. M/S MACMILLAN PUBLISHERS INDIA PVT. LTD., NO.21, PATTULOS ROAD, CHENNAI - 600 034. PAN : AAFCM 5564 R (,-/ APPELLANT) (./,-/ RESPONDENT) ,- 0 1 / APPELLANT BY : SHRI AR.V. SREENIVASAN, JCIT ./,- 0 1 / RESPONDENT BY : SHRI T. SURYANARAYANA, ADVOCAT E 2 0 3' / DATE OF HEARING : 28.01.2019 45* 0 3' / DATE OF PRONOUNCEMENT : 07.03.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -8, CHENNA I, DATED 07.12.2017 AND PERTAINS TO ASSESSMENT YEAR 2012-13. 2 I.T.A. NO.568/CHNY/18 2. SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF PUBLICATION. DURING THE YEAR UN DER CONSIDERATION, ACCORDING TO THE LD. D.R., THE ASSESSEE-COMPANY MER GED ITSELF WITH FRANK BROTHERS AND COMPANY PUBLISHERS LIMITED, WHIC H WAS A WHOLLY OWNED SUBSIDIARY COMPANY OF THE ASSESSEE. A S PER THE SCHEME OF AMALGAMATION BETWEEN THE ASSESSEE AND THE SUBSIDIARY COMPANY, THE ASSET WAS VALUED. ACCORDING TO THE LD . D.R., THE AMALGAMATION OF THE ASSESSEE WITH ITS SUBSIDIARY CO MPANY WAS APPROVED BY THE MADRAS HIGH COURT AND THE DELHI HIG H COURT. ACCORDING TO THE LD. D.R., THE SUBSIDIARY COMPANY W AS REGISTERED IN DELHI, THEREFORE, THE DELHI HIGH COURT ALSO APPROVE D THE AMALGAMATION. 3. SHRI AR.V. SREENIVASAN, THE LD. D.R. FURTHER SUB MITTED THAT THE ASSESSEE CLAIMED DEPRECIATION OF 6,30,35,714/- ON THE GOODWILL TAKEN ON THE BOOKS OF THE ASSESSEE-COMPANY TO THE E XTENT OF 25,21,40,218/-. REFERRING TO THE ASSESSMENT ORDER, THE LD. D.R. SUBMITTED THAT THE ASSESSEE HAD NOT MADE ANY CLAIM OF DEPRECIATION IN THE RETURN OF INCOME. HOWEVER, THE SAME WAS MAD E IN THE COURSE OF ASSESSMENT PROCEEDING. ACCORDING TO THE LD. D.R., THE 3 I.T.A. NO.568/CHNY/18 ASSESSEE CLAIMED BEFORE THE ASSESSING OFFICER THAT THE CLAIM FOR DEPRECIATION WAS MADE ON THE BASIS OF JUDGMENT OF A PEX COURT IN CIT V. SMIFS SECURITIES LTD. (2012) 348 ITR 302. I N THE CASE BEFORE APEX COURT, ACCORDING TO THE LD. D.R., EXCESS CONSI DERATION WAS PAID OVER AND ABOVE THE NET ASSET VALUE OF THE COMP ANY, THEREFORE, THE EXCESS CONSIDERATION OVER AND ABOVE THE NET ASS ET VALUE WAS TREATED AS CONSIDERATION FOR GOODWILL AND DEPRECIAT ION WAS ALLOWED BY THE APEX COURT. THE ISSUE BEFORE THE APEX COURT WAS WHETHER THE GOODWILL IS DEPRECIABLE ASSET OR NOT. THE APEX COURT FOUND THAT THE GOODWILL IS A DEPRECIABLE ASSET SINCE IT FALLS WITHIN THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THEREFORE, ACCORDING TO THE LD. D.R., THE SUPREME COURT HAS NOT FOUND THAT THE ASSESSEE IS ELIGIBLE FOR DEP RECIATION EVEN IN THE CASE OF AMALGAMATION. IN THE PRESENT CASE, AC CORDING TO THE LD. D.R., THE ASSESSEE HAS NOT PAID ANY MONEY. THE ASSESSEE WAS HOLDING 100% SHARES OF SUBSIDIARY COMPANY AND ON AM ALGAMATION, THE SUBSIDIARY COMPANY MERGED WITH THE ASSESSEE-COM PANY AND IT FORMED PART OF ASSESSEE-COMPANY. ACCORDING TO THE LD. D.R., THE ENTIRE LIABILITIES AND ASSETS OF THE COMPANY WERE T AKEN OVER BY THE ASSESSEE WITHOUT ANY PAYMENT. SINCE NO AMOUNT WAS PAID AS CONSIDERATION OVER AND ABOVE THE NET VALUE OF THE S HARES OF 4 I.T.A. NO.568/CHNY/18 SUBSIDIARY COMPANY, ACCORDING TO THE LD. D.R., THE QUESTION OF CLAIMING DEPRECIATION ON THE GOODWILL DOES NOT ARIS E. IN OTHER WORDS, ACCORDING TO THE LD. D.R., THERE WAS NO COST IN THE SO-CALLED GOODWILL, THEREFORE, THE CIT(APPEALS) IS NOT JUSTIF IED IN ALLOWING DEPRECIATION ON THE BASIS OF THE JUDGMENT OF APEX C OURT IN SMIFS SECURITIES LTD. (SUPRA). 4. ON THE CONTRARY, SHRI T. SURYANARAYANA, THE LD.C OUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE-COMPANY C AME INTO EXISTENCE BY DEMERGER OF M/S MACMILLAN INDIA LIMITE D. ACCORDING TO THE LD. COUNSEL, THE PRINTING BUSINESS OF THE PA RENT COMPANY, NAMELY, MACMILLAN INDIA LIMITED REMAINED WITH PAREN T COMPANY. THE PUBLICATION BUSINESS WAS HIVED OFF INTO MACMILL AN PUBLISHERS INDIA LTD. ACCORDING TO THE LD. COUNSEL, THE PAREN T COMPANY PURCHASED THE SHARES OF M/S FRANK BROTHERS AND COMP ANY PUBLISHERS LTD. FOR A TOTAL CONSIDERATION OF 41,56,04,120/-. THE SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. PURCHASED BY THE PARENT COMPANY WERE ASSIGNED TO TH E ASSESSEE- COMPANY AT THE TIME OF DEMERGER. SUBSEQUENTLY, ACC ORDING TO THE LD. COUNSEL, THE ASSESSEE-COMPANY MERGED WITH 100% SUBSIDIARY COMPANY OF M/S FRANK BROTHERS AND COMPANY PUBLISHER S LTD. 5 I.T.A. NO.568/CHNY/18 CONSEQUENT TO THE AMALGAMATION, ACCORDING TO THE LD . COUNSEL, M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. BECAME M /S MACMILLAN PUBLISHERS INDIA PVT. LTD. THE EXCESS AS SETS OVER THE LIABILITIES OF M/S FRANK BROTHERS AND COMPANY PUBLI SHERS LTD. WERE 16,34,64,782/-. THE BOOK VALUE OF INVESTMENTS IS 41,56,05,000/-. THEREFORE, ACCORDING TO THE LD. COUNSEL, THE EXCESS AMOUNT OF 25,21,40,218/- WAS TAKEN ON BOOK AS GOODWILL. 5. SHRI T. SURYANARAYANA, THE LD.COUNSEL FOR THE AS SESSEE, FURTHER SUBMITTED THAT EVEN THOUGH INITIALLY THE AS SESSEE FAILED TO CLAIM DEPRECIATION, SINCE THE GOODWILL IS A DEPRECI ABLE ASSET, THE ASSESSEE IN THE COURSE OF ASSESSMENT PROCEEDING CLA IMED THE SAME BEFORE THE ASSESSING OFFICER. ACCORDING TO TH E LD. COUNSEL, THE PARENT COMPANY BEFORE ITS DEMERGER, INVESTED IN THE SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. TO T HE EXTENT OF 41,56,05,000/-. THEREFORE, ACCORDING TO THE LD. CO UNSEL, THE AMOUNT INVESTED BY THE ASSESSEE IN THE SHARES OF M/ S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. OVER AND ABOVE THE VALUE OF ASSET HAS TO BE CONSIDERED AS CONSIDERATION FOR THE GOODWILL, HENCE, THE CIT(APPEALS) HAS RIGHTLY ALLOWED THE CLAIM OF T HE ASSESSEE ON THE BASIS OF JUDGMENT OF APEX COURT IN SMIFS SECURI TIES LTD. (SUPRA). 6 I.T.A. NO.568/CHNY/18 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE-COMPANY CAME INTO EXISTEN CE DUE TO DEMERGER OF M/S MACMILLAN INDIA LTD. BEING THE PARE NT COMPANY. IN FACT, M/S MACMILLAN INDIA LTD. INVESTED IN THE SHAR ES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. BEFORE DEMERGE R. THE SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. WERE ALLOTTED TO THE ASSESSEE-COMPANY. THEREFORE, IT IS OBVIOUS THAT M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. IS 100% SUBSIDIARY COMPANY OF THE ASSESSEE. IN OTHER WORDS, THE ASSES SEE IS HOLDING COMPANY OF M/S FRANK BROTHERS AND COMPANY PUBLISHER S LTD. NOW M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. MERG ED WITH ASSESSEE-COMPANY. THE ASSESSEE-COMPANY CLAIMS THAT THE INVESTMENT IN THE SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. WAS 41,56,05,000/-. THE EXCESS ASSETS OVER THE LIABILITIES OF M/S FRANK BROTHERS AND COMPANY PUBLI SHERS LTD. WERE 16,34,64,782/-. THEREFORE, THE EXCESS AMOUNT OF 25,21,40,218/- INVESTED BY THE PARENT COMPANY INITIALLY HAS TO BE TAKEN AS GOODWILL ELIGIBLE FOR DEPRECIATION. 7 I.T.A. NO.568/CHNY/18 7. NO DOUBT, EVEN THOUGH M/S FRANK BROTHERS AND COM PANY PUBLISHERS LTD. IS SUBSIDIARY COMPANY OF THE ASSESS EE, IT IS AN INDEPENDENT STATUTORY ENTITY OWNING ITS OWN ASSETS AND GOODWILL. THE QUESTION ARISES FOR CONSIDERATION IS WHEN THE H OLDING COMPANY OR SUBSIDIARY COMPANY MERGED ITSELF ON ACCOUNT OF A MALGAMATION, WHETHER THERE WAS ANY TRANSFER OF GOODWILL BETWEEN THEM? THIS ISSUE WAS NOT CONSIDERED EITHER BY THE ASSESSING OF FICER OR BY THE CIT(APPEALS). MOREOVER, HOW THE VALUATION OF THE A SSET WAS DONE AND HOW IT WAS OVER AND ABOVE THE LIABILITIES WERE NOT EXPLAINED BY THE ASSESSEE. ADMITTEDLY, NO CONSIDERATION WAS PAI D BY THE ASSESSEE FOR ACQUISITION OF SUBSIDIARY COMPANY. TH E SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. CONTINUE D TO BE WITH ASSESSEE-COMPANY. IT IS NOT KNOWN AFTER THE AMALGA MATION, HOW THE SHARES WERE DISTRIBUTED AMONG THE SHAREHOLDERS OF ASSESSEE- COMPANY. 8. AS RIGHTLY SUBMITTED BY THE LD. D.R., THE APEX C OURT IN THE CASE OF SMIFS SECURITIES LTD. (SUPRA), FOUND THAT G OODWILL IS AN ASSET UNDER EXPLANATION 3(B) TO SECTION 32(1) OF THE INCO ME-TAX ACT, 1961 AND ELIGIBLE FOR DEPRECIATION. MOREOVER, IN THE CA SE BEFORE APEX COURT, EXCESS AMOUNT WAS PAID OVER AND ABOVE THE NE T VALUE OF THE 8 I.T.A. NO.568/CHNY/18 ASSET OF THE COMPANY. IN THE PRESENT CASE, DURING THE COURSE OF AMALGAMATION, NO AMOUNT WAS PAID. THE ASSESSEE CLA IMS THAT THE AMOUNT INVESTED BY THE PARENT COMPANY IN THE SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. HAS TO BE TAKE N AS CONSIDERATION AND EXCESS AMOUNT OVER THE NET VALUE OF THE ASSET HAS TO BE TREATED AS PAYMENT FOR GOODWILL. IN OTHE R WORDS, WHETHER THE EXCESS AMOUNT INVESTED BY THE PARENT COMPANY OF THE ASSESSEE IN THE SHARE OF M/S FRANK BROTHERS AND COMPANY PUBL ISHERS LTD. HAS TO BE CONSIDERED AS CONSIDERATION FOR THE GOODW ILL NEEDS TO BE EXAMINED. ACCORDINGLY, THE ORDER OF THE CIT(APPEAL S) IS SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE O F THE CIT(APPEALS). THE CIT(APPEALS) SHALL RE-EXAMINE THE MATTER AND BR ING ON RECORD WHETHER THERE WAS ANY EXCESS CONSIDERATION PAID BY THE ASSESSEE WHEN THE AMALGAMATION TOOK PLACE AND WHETHER THE AM OUNT INVESTED BY THE PARENT COMPANY IN THE SHARES OF M/S FRANK BROTHERS AND COMPANY PUBLISHERS LTD. HAS TO BE TAKEN AS CONS IDERATION, IF SO TO WHAT EXTENT AND THEREAFTER DECIDE THE ISSUE AFRE SH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. 9 I.T.A. NO.568/CHNY/18 ORDER PRONOUNCED IN THE COURT ON 7 TH MARCH, 2019 AT CHENNAI. SD/- SD/- ( !.#$#% ) ( . . . ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 7 TH MARCH, 2019. KRI. 0 .389 :9*3 /COPY TO: 1. ,- /APPELLANT 2. ./,- /RESPONDENT 3. 2 ;3 () /CIT(A)-8, CHENNAI 4. PRINCIPAL CIT, CHENNAI-4, CHENNAI 5. 9< .3 /DR 6. =% > /GF.