DCIT, Bangalore V. M/s Hewlett Packard India Sales P. Ltd., Bangalore

ITA 617/BANG/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57536 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-03-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 04-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K AMBASTHA CITIDR
• Assessee Lawyers: PRADHAN DASS
• Keywords: Depreciation; Tax effect; Revised return; Capital expenditure
• Section: 143(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K., JUDICIAL MEMBER ITA NO.617/BANG/2010 ASSESSMENT YEAR : 2004-05 THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE. VS. M/S. HEWLETT PACKARD INDIA SALES PVT. LTD., (FORMERLY COMPAQ COMPUTERS P. LTD.,), NO.24, SALARPURIA ARENA, HOSUR MAIN ROAD, ADUGODI, BANGALORE 560 030. PAN : AAACC 9862F APPELLANT RESPONDENT APPELLANT BY : SHRI S.K. AMBASTHA, CIT-I(DR) RESPONDENT BY : SHRI PRADHAN DASS, C.A. DATE OF HEARING : 21.03.2012 DATE OF PRONOUNCEMENT : 21.03.2012 O R D E R PER N.K. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE O RDER DATED 13.01.2010 OF THE CIT(APPEALS), LTU, BANGALORE. 2. FOLLOWING EFFECTIVE GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 2. THE LEARNED CIT(A), LTU HAS NOT EXAMINED FOLLO WING FACTS OF THE CASE BROUGHT OUT IN THE ORDER GIVING EFFECT TO THE ORDERS OF ITAT FOR THE ASSESSMENT YEAR 2000-01. ITA NO.617/BANG/2010 PAGE 2 OF 7 A. DEPRECIATION CAN BE ALLOWED ONLY ON SUCH INTANG IBLE ASSETS THAT ARE SPECIFIED IN SECTION 32. B. AS NOTED IN THE ORDER GIVING EFFECT TO THE ORDE RS OF ITAT, THE ASSESSEE HAS NOT ACQUIRED ANY ASSET LIKE PATENT , TRADEMARK ETC, SPECIFIED IN SECTION 32(1)(II). C. THE ASSESSEE HAS FAILED TO IDENTIFY THE DEPRECI ABLE ASSETS EXCEPT LOOSELY CALLING THEM AS INTANGIBLE ASSETS. D. THE VALUE ATTRIBUTED TO THE INTANGIBLE ASSETS I S ONLY ON AN ADHOC BASIS. E. ACCORDING TO SECTION 43(1), DEPRECIATION HAS TO BE ALLOWED ON THE ACTUAL COST AND NOT ON THE ESTIMATED COST OF THE ASSET. F. THE DECISION OF THE HONBLE HIGH COURT OF KARNA TAKA IN CIT VS MANGALORE GANESH BEEDI WORKS 266 TTR 142 IS SQUARELY APPLICABLE TO THIS CASE. G. THE INTANGIBLE ASSETS ON WHICH DEPRECIATION HAS TO BE ALLOWED ON THE BASIS OF THE ORDERS OF CIT(A) INCLUD E ASSETS LIKE THE LEASEHOLD RIGHTS TO OCCUPY OFFICE SPACE. 3 TAX EFFECT ON THE ISSUE IS RS 12,26,40,984/-. 3. FROM THE ABOVE GROUNDS, IT IS NOTICED THAT THE O NLY GRIEVANCE OF THE DEPARTMENT RELATES TO THE DEPRECIATION ON INTANGIBL E ASSETS. 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FILED ITS RETURN OF INCOME ON 31.10.2004 DECLARING A TOTAL INCOME OF RS .185,19,01,840. SUBSEQUENTLY A REVISED RETURN WAS FILED ON 22.12.20 05 DECLARING TOTAL INCOME AT RS.1,90,26,55,700. THE RETURN WAS PROCES SED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS T HE ACT IN SHORT]. LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DISALLOWED A SUM OF RS.2,87,05,957 CLAIMED BY THE ASSESSEE AS DE PRECIATION ON INTANGIBLE ASSETS BY OBSERVING IN PARA 4 OF THE ASS ESSMENT ORDER DATED 29.12.06 AS UNDER: ITA NO.617/BANG/2010 PAGE 3 OF 7 4. DEPRECIATION ON INTANGIBLES THE DEPRECIATION ON INTANGIBLE ASSETS AMOUNTING TO RS.2,87,05,957 WAS CONSIDERED FOR DISALLOWANCE. TH E ASSESSEES CLAIM ON THIS ISSUE FOR THE ASST. YEAR 2000-01, DEC IDED IN FAVOUR OF THE ASSESSEE BY THE ITAT IS NOT ACCEPTED AND THE SUBJECT IS IN FURTHER APPEAL. AS FOR NOW, THE DEPRECIATION CLAIM IS DISALLOWED. IF IT IS DECIDED BY THE HONBLE COURT, THAT THE DEP RECIATION IS TO BE ALLOWED, THIS ASSESSMENT WILL BE MODIFIED ACCORDING LY. 6. THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A ), WHO ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING IN PARA 4.3 OF T HE IMPUGNED ORDER AS UNDER: 4.3 I HAVE CAREFULLY CONSIDERED THE APPELLANTS CO NTENTIONS. AN IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE APP ELLANT IN MY APPELLATE ORDER ITA NO.14/DC(LTU)/CIT(A)LTU/08-09 D ATED 13/11/2009 AND ITA NO.19/DC(LTU)/CIT(A)LTU/08-09 DA TED 13/11/2009 FOR THE ASSESSMENT YEARS 2000-01 AND 200 5-06 RESPECTIVELY. FOR THE SAME REASONS AS MENTIONED IN THE SAID APPELLATE ORDERS, THE APPELLANTS CLAIM FOR DEPRECI ATION OF RS.2,87,05,947 ON INTANGIBLES IS ALLOWED. NOW THE DEPARTMENT IS IN APPEAL. 7. DURING THE COURSE OF HEARING, THE LD. COUNSEL FO R THE ASSESSEE AT THE VERY OUTSET STATED THAT THIS ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL DATED 25.02.2011 IN ASSESSEES OWN CASE IN ITA NO.249 & 250/BANG/2010 F OR THE A.YS. 2000- 01 & 2005-06, COPY OF THE SAID ORDER WAS FURNISHED. 8. IN HIS RIVAL SUBMISSIONS, THE LD. CIT(DR) ALTHOU GH SUPPORTED THE ORDER OF THE AO, BUT COULD NOT CONTROVERT THE AFORE SAID CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 9. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND MATERIAL ON RECORD, IT IS NOTICED THAT A SIMILAR ISSUE HAVING I DENTICAL FACTS HAS BEEN ITA NO.617/BANG/2010 PAGE 4 OF 7 DECIDED IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASE VIDE ORDER DATED 25.02.2011 BY THIS BENCH OF THE TRIBUNAL IN ITA NO. 249 & 250/BANG/2010 FOR THE A.YS 2000-01 & 2005-06 RESPECTIVELY. THE R ELEVANT FINDINGS ARE GIVEN IN PARAS 7 & 8 OF THE SAID ORDER WHICH READ A S UNDER: 7. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, METICULOUSLY PERUSED THE RELEVANT RECORDS AND ALSO THE CASE LAWS ON WHICH THE LD. A R HAD PLACED HIS STRONG FAITH. 7.1. AT THE OUT SET, WE WOULD LIKE TO POINT OUT THA T IN AN IDENTICAL ISSUE - CONFRONTING US NOW FOR ADJUDICATION HAD C ROPPED UP BEFORE THE EARLIER BENCH IN THE CASE OF BOSCH LIMI TED CITED SUPRA WHEREIN THE HONBLE BENCH, AFTER EXHAUSTIVELY DELIB ERATING THE ISSUE AND ALSO TAKING CUE FROM THE FINDING OF THE H ONBLE MUMBAI BENCH (ITAT) IN THE CASE OF SKYLINE CATERERS PVT. LTD. V. ITO (2008) 20 SOT 266 (MUM.) (SMC), HAD OBSERVED THUS 6.6. THE FINDING OF THE HONBLE ITAT, MUMBAI BENCH SMC REFERRED SUPRA IS DIRECTLY APPLICABLE TO THE FACTS OF THE CASE ON HAND. RESPECTFULLY FOLLOWING THE SAID D ECISION, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE COM PANY IS ENTITLED TO CLAIM DEPRECIATION ON BUSINESS INFORMA TION AMOUNTING TO RS.1.38 CRORES UNDER THE CATEGORY OF OTHER IDENTIFIABLE INTANGIBLES (GOODWILL) WHICH HAS BEEN RIGHTLY CLAIMED BY THE ASSESSEE. 7.2. FOR APPRECIATION OF FACTS AND FOR CLARITY, WE ARE OBLIGED TO EXTRACT THE FINDING OF THE HONBLE MUMBAI BENCH IN THE CASE OF SKYLINE CATERERS (P) LTD. V. ITO AS UNDER: THE ASSESSEE-COMPANY WAS ENGAGED IN THE BUSINESS OF PROVIDING CATERING, HOUSEKEEPING AND ALLIED SERVICE S TO A COMPANY HLL. SUCH CATERING BUSINESS WAS EARLIE R CARRIED ON BY ONE R UNDER A CATERING CONTRACT WIT H HLL FOR THE LAST 30 YEARS. THE ASSESSEE ENTERED INT O AN AGREEMENT WITH R FOR TAKING OVER THE CATERING CONTRACT OF R WITH HLL AGAINST A CONSIDERATION OF RS.27 LAKHS. OUT OF THE SAID SUM, THE ASSESSEE PAID A SUM OF RS.25 LAKHS TO R AS A CONSIDERATION FOR ACQUIRING ALL THE RIGHTS UNDER THE CATERING CONTRAC T BETWEEN R AND HLL AND BALANCE SUM OF RS.2 LAKHS WAS PAID TO R FOR NOT COMPETING WITH THE ASSESSEE . THE ASSESSEE REFLECTED THE SAID AMOUNT IN ITS BALAN CE SHEET AS GOODWILL AND CLAIMED DEPRECIATION THEREON ITA NO.617/BANG/2010 PAGE 5 OF 7 TREATING THE SAME AS INTANGIBLE ASSETS AS WELL COMMERCIAL RIGHTS ACQUIRED BY IT. THE AO HELD THAT THE GOODWILL DID NOT FIND PLACE IN S.32 AS PART OF INTA NGIBLE ASSETS WHICH INCLUDED ONLY KNOW-HOW, PATENTS, COPYRIGHTS, TRADE MARKS ETC. HE FURTHER HELD THAT T HE EXPRESSION SIMILAR NATURE IN S.32(1)(II) WOULD NO T INCLUDE THE GOODWILL. THUS, DEPRECIATION WAS DISALLOWED. ON APPEAL, THE CIT(A) UPHELD THE ACTION OF THE AO O N THE GROUND THAT THE ENTIRE PAYMENT OF RS.27 LAKHS W AS PAID TO R FOR NOT COMPETING WITH THE ASSESSEE WHI CH AMOUNTED TO CAPITAL EXPENDITURE NOT COVERED BY S.32(1)(II). ON SECOND APPEAL, IT WAS HELD THAT - A COMBINED READING OF THE AGREEMENT DT.16/8/00 ENTERED INTO BETWEEN THE ASSESSEE AND R REVEALED THAT THE ASSESSEE HAD PAID THE SUM OF RS.25 LAKHS FOR ACQUIR ING ALL THE RIGHTS UNDER THE CATERING CONTRACT BETWEEN R AND HLL AS WELL AS CERTAIN ASSETS BELONGING TO R. ON THE OTHER HAND, RS.2 LAKHS HAD BEEN PAID ON THE GROUND THAT R WOULD NOT COMPETE WITH THE ASSESSEE IN ANY BUSINESS OF CATERING AT HLL CANTEEN. THEREFORE, CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT THE ENTIR E RS.27 LAKHS WAS PAID TO R FOR NOT COMPETING WITH THE ASSESSEE. RS.25 LAKHS WAS MADE FOR ACQUIRING ALL TH E RIGHTS UNDER THE CATERING CONTRACT BETWEEN R AND HLL AND FOR ACQUIRING ARTICLES AND PARAPHERNALIA BELONGING TO R WHICH WERE LYING IN THE CANTEEN. SINCE THE PAYMENT RELATED TO THE ACQUISITION OF RIG HTS UNDER THE CONTRACT, IT COULD NOT BE SAID THAT PAYME NT WAS EITHER ON ACCOUNT OF GOODWILL OR ON ACCOUNT OF NOT TO COMPETE WITH THE ASSESSEE. FURTHER, MERELY BECAU SE THE ASSESSEE SHOWED THE SAID PAYMENT ON ACCOUNT OF GOODWILL IN THE BOOKS OF ACCOUNT, NO ADVERSE INFERE NCE COULD BE DRAWN AGAINST THE ASSESSEE. A PERUSAL OF THE PROVISIONS OF S.32(1)(II) SHOWS TH AT THE LEGISLATURE HAS SPECIFIED CERTAIN INTANGIBLE ASSETS ON WHICH DEPRECIATION CAN BE CLAIMED, NAMELY, KNOWHOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHIS ES. THESE SPECIFIC INTANGIBLE ASSETS ARE FOLLOWED BY TH E EXPRESSION ANY OTHER BUSINESS OF COMMERCIAL RIGHTS OF SIMILAR NATURE. IN SUCH A SITUATION, THE RULE OF EJUSDEM GENERIS WOULD APPLY. THE SCOPE OF THE RULE IS THAT WORDS OF A GENERAL NATURE FOLLOWING SPECIFIC A ND ITA NO.617/BANG/2010 PAGE 6 OF 7 PARTICULAR WORDS SHOULD BE CONSTRUED AS LIMITED TO THINGS WHICH ARE OF THE SAME NATURE AS THOSE SPECIF IED. THE GENERAL WORDS TAKE THE COLOUR FROM THE SPECIFIC WORDS. THE SPECIFIC WORDS IN THE ABOVE SECTION REVE AL THE SIMILARITY IN THE SENSE THAT ALL THE INTANGIBLE ASSETS SPECIFIED ARE TOOLS OF THE TRADE, WHICH FACILITATE THE ASSESSEE CARRYING ON THE BUSINESS. THEREFORE, THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE WOULD INCLUDE SUCH RIGHTS WHICH CAN BE USED AS A TOOL TO CARRY ON THE BUSINESS. IF THIS TE ST WAS TO BE APPLIED, THEN THE RIGHTS ACQUIRED BY THE ASSE SSEE UNDER THE CATERING CONTRACT BETWEEN R AND HLL WOULD FALL WITHIN THE EXPRESSION MENTIONED ABOVE. FURTHER, SINCE CATERING BUSINESS AT HLL CANTEEN COU LD BE CARRIED ON ONLY WITH THE HELP OF SUCH RIGHTS UND ER THE CONTRACT, THE ASSESSEE WOULD BE ENTITLED TO DEPRECIATION. 7.3. FURTHER, IN THE CASE OF HINDUSTAN COCOA COLA B EVERAGES PVT. LTD. V. DCIT REPORTED IN 2009-TIOL-650-ITAT-DEL, TH E HONBLE ITAT, DELHI C BENCH HAS HELD THAT GOODWILL IS NOT SPECIFICALLY EXCLUDED FROM THE INTANGIBLE ASSETS EL IGIBLE FOR DEPRECIATION. EVEN IF AN ASSET IS DESCRIBED AS GOOD WILL BUT IT FITS IN THE DESCRIPTION OF SECTION 32(1)(II), DEPRECIATI ON IS TO BE GRANTED ON THE SAME. THE TRUE BASIS OF DEPRECIATION ALLOWANCE IS THE CHARACTER OF THE ASSET AND NOT ITS DESCRIPTION. 7.4. WE HAVE ALSO PERUSED WITH RESPECTS THE RULING OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. MAN GALORE GANESH BEEDI WORKS REPORTED IN 264 ITR 142 ON WHICH THE RE VENUE HAS PLACED ITS FAITH. WITH DUE RESPECTS, WE WOULD LIKE TO POINT OUT THAT THE CASE LAW RELIED ON BY THE REVENUE IS CLEARLY DI STINGUISHABLE IN THE SENSE THAT - THE HONBLE COURT MADE A FINDING THAT THE BUYER DID NOT HAVE ANY OF INTANGIBLE ASSETS OF THE NATURE AS FIND ING A PLACE IN S.35AB OF THE ACT; THAT THE ONLY INTANGIBL E ASSET OF THE SELLER WAS GOODWILL; THAT (AS RIGHTLY OBSERV ED BY THE HONBLE COURT) THE PURCHASER WAS TRYING TO BIFURCAT E SUCH GOODWILL INTO INTANGIBLES OF THE NATURE AS MENTIONE D IN S.34AB OF THE ACT; AND THAT THE VALUER HAD NOT GIVE N COGENT REASONS FOR ARRIVING AT THE VALUE OF THE INT ANGIBLES . 8. IN AN OVERALL CONSIDERATION OF THE FACTS AND CIR CUMSTANCES OF THE MATTER AS DELIBERATED UPON IN THE PRECEDING PAR AGRAPHS AND ALSO IN CONFORMITY WITH THE FINDING OF THE EARLIER BENCH IN THE CASE OF BOSCH LTD. CITED SUPRA AND MORE SO THE FIND ING OF ITA NO.617/BANG/2010 PAGE 7 OF 7 MUMBAI BENCH OF HONBLE ITAT IN THE CASE OF SKYLINE CATERERS (P ) LTD V. ITO REFERRED ABOVE, WE ARE OF THE CONSI DERED VIEW THAT THE LD. CIT (A)-LTU WAS FULLY JUSTIFIED IN HOLDING A STAND THAT THE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION U/S 32(1 )(II) OF THE ACT ON THE INTANGIBLE ASSETS. IT IS ORDERED ACCORDINGLY . 10. SO, RESPECTFULLY FOLLOWING THE AFORESAID REFERR ED TO ORDER DATED 25.02.2011 OF THIS BENCH OF THE TRIBUNAL IN ASSESSE ES OWN CASE, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 11. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF MARCH, 2012. SD/- SD/- ( GEORGE GEORGE K. ) ( N.K. SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 21 ST MARCH , 2012. DS/- COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.