DCIT, New Delhi V. M/s. Bharti Teletech Ltd., New Delhi

ITA 5730/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1269 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-01-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 09-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHIM SINGH SENIOR
• Assessee Lawyers: AMIT BHALLA
• Keywords: Depreciation; Retrospective amendment; Scheme of amalgamation
• Section: 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) SHRI U.B.S. BEDI, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5730/DEL./2012 (ASSESSMENT YEAR : 2007-08) DCIT, CIRCLE 2 (1), VS. M/S. BHARTI TELETECH LIMI TED, NEW DELHI. D 195, OKHLA INDUSTRIAL AREA, PHAS E-I NEW DELHI 110 020. (PAN : AABCB3989M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT BHALLA, CA REVENUE BY : SHRI BHIM SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED REVENUE EMANATES FROM THE ORDER O F CIT (APPEALS)-V, NEW DELHI DATED 11.09.2012 FOR THE ASSESSMENT YEAR 2007-08. 2. THE ASSESSEE IS CARRYING OUT BUSINESS OF MANUFAC TURING, DISTRIBUTION AND MARKETING TELEPHONE INSTRUMENTS FOR LANDLINE. THE ASSESSMENT WAS COMPLETED AT RS.63,89,37,240/- AGAINST THE RETURNED INCOME OF RS.63,14,39,130/-. 3. THE ONLY ISSUE INVOLVED IN THE APPEAL IS DELETIN G THE ADDITION OF RS.40,04,517/- MADE ON ACCOUNT OF DEPRECIATION ON G OODWILL. THE REVENUES VIEW IS THAT THE GOODWILL IS NOT COVERED WITHIN INT ANGIBLE ASSETS WHEREIN ONLY ITA NO.5730/DEL./2012 2 KNOW-HOW, PATENT, COPYRIGHTS, TRADEMARKS, LICENSES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE ARE COVERED. 4. AT THE OUTSET OF THE HEARING, THE LD. AR SUBMITT ED THAT THIS ISSUE IS COVERED BY THE ORDER OF HON'BLE ITAT IN ASSESSEES OWN CASE IN ITA NO.5321 & 5322/DEL/2012 FOR ASSESSMENT YEARS 2008-09 AND 20 09-10 RESPECTIVELY. IN THESE APPEALS, THE ISSUE HAS BEEN DECIDED IN FAV OUR OF THE ASSESSEE IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CAS E OF CIT VS. SMIFS SECURITIES LTD. REPORTED IN 348 ITR 302. THE HON'B LE SUPREME COURT HAS HELD THAT GOODWILL IS AN ASSET WITHIN THE MEANING OF SEC TION 32 OF THE INCOME-TAX ACT, 1961 AND THE DEPRECIATION IS ADMISSIBLE. THE HON'BLE APEX COURT HAS CONSIDERED THE FOLLOWING QUESTION AND ANSWERED AS U NDER :- QUESTION NO.[B] : 'WHETHER GOODWILL IS AN ASSET WITHIN THE MEANING OF SECTION 32 OF THE INCOME TAX ACT, 1961, AND WHETHER DEPRECI ATION ON' GOODWILL' 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 G OODWILL WAS GIVEN AS UNDER: 'IN ACCORDANCE WITH SCHEME OF AMALGAMATION OF YSN S HARES & SECURITIES (P) LTD WITH SMIFS SECURITIES LTD (DUL Y SANCTIONED BY HON'BLE HIGH COURTS OF BOMBAY AND CAL CUTTA) WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 1998, ASS ETS 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.' ITA NO.5730/DEL./2012 3 7. IT WAS FURTHER EXPLAINED THAT EXCESS CONSIDERATI ON PAID BY THE ASSESSEE OVER THE VALUE OF NET ASSETS ACQUIR ED OF YSN SHARES AND SECURITIES PRIVATE LIMITED [AMALGAMATING COMPANY] SHOULD BE CONSIDERED AS GOODWILL ARISING O N AMALGAMATION. IT WAS CLAIMED THAT THE EXTRA CONSIDE RATION WAS PAID TOWARDS THE REPUTATION WHICH THE AMALGAMATING COMPANY WAS ENJOYING IN ORDER TO RETAIN ITS EXISTIN G CLIENTELE. 8. THE ASSESSING OFFICER HELD THAT GOODWILL WAS NOT AN ASSET FALLING UNDER EXPLANATION 3 TO SECTION 32(1) OF THE INCOME TAX ACT, 1961 [' ACT', FOR SHORT]. 9. WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32 (1) OF THE ACT: 'EXPLANATION 3.-- FOR THE PURPOSES OF THIS SUB-SECT ION, THE EXPRESSIONS ASSETS' AND 'BLOCK OF ASSETS' SHALL ME AN-- [A] TANGIBLE ASSETS, BEING BUILDINGS, MACHINERY, PL ANT OR FURNITURE; [B] INTANGIBLE ASSETS, BEING KNOW-HOW, PATENTS, COP YRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE.' EXPLANATION 3 STATES THAT THE EXPRESSION 'ASSET' SH ALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGH TS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. 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 EXPRESSION 'ANY OTHER BUSINESS OR COMMERCIAL RI GHT OF A SIMILAR NATURE'. THE PRINCIPLE OF EJUSDEM GENERIS W OULD STRICTLY APPLY WHILE INTERPRETING THE SAID EXPRESSION 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 TH E ACT'. ITA NO.5730/DEL./2012 4 5. AFTER HEARING BOTH SIDES AND RESPECTFULLY FOLLOW ING THE DECISION OF HON'BLE SUPREME COURT AND ALSO THE DECISION OF THE HON'BLE ITAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2008-09 & 2009-10 (SUPRA), WE DISMISS THE REVENUES APPEAL. 6. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 14 TH DAY OF JANUARY, 2013 AFTER THE CONCLUSION OF THE HEARING. SD/- SD/- (U.B.S. BEDI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 14 TH DAY OF JANUARY, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-V, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.