DCIT 10(3), MUMBAI V. TEXANLAB LABORATORIES P.LTD, NAVI MUMBAI

ITA 7172/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92811 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2008-2009
• Appeal Filed On: 06-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Depreciation; Valuation report
• Section: 32

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM AND SHRI D. KARUNAKAR A RAO, AM ./ I.T.A. NO.7172 /MUM/2013 ( / ASSESSMENT YEAR : 2008-09 ./ I.T.A. NO.7173 /MUM/2013 ( / ASSESSMENT YEAR : 2009-10 DY. COMMISSIONER OF INCOME TAX -10(3), ROOM NO. 451, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI 20. / VS. M/S TEXANLAB LABORATORIES PVT. LTD., R-855, IST FLOOR, TTC INDUSTRIAL AREA, RABALE, P.O. GHANSOLI, NAVI MUMBAI 400 701. ./ PAN : AABCT4229Q ( / APPELLANT ) .. ( / RESPONDENT ) A PPELLANT BY SHRI NEIL PHILIP (D.R.) RESPONDENT BY SHRI VIJAY MEHTA / DATE OF HEARING : 06-05-2015 / DATE OF PRONOUNCEMENT : 10-06-2015 [ !' / O R D E R PER VIJAY PAL RAO, J.M . : THESE TWO APPEALS BY THE REVENUE ARE DIRECTED AGAIN ST THE ORDER DATED 4-09-2013 OF LD. CIT(A)- 22, MUMBAI PERTAINING TO A SSESSMENT YEARS 2008-09 & 2009-10. 2. THE REVENUE HAS RAISED COMMON GROUNDS IN THESE A PPEALS. 3. THE GROUNDS RAISED BY THE REVENUE FOR A.Y. 2008- 09 ARE AS UNDER:- ITA 7172 & 7173/M/13 2 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION ON ASSETS IN 'SLUMP SALE' AND IGNORING THE FACT THAT IN SLUMP SALE ONE OR MORE UN DERTAKING ARE TRANSFERRED AS A RESULT OF SALE FOR A LUMP SUM CONS IDERATION WITHOUT ASSIGNING ANY VALUE TO INDIVIDUAL ASSET AND LIABILI TIES INVOLVED IN SUCH SALE.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEPRECIATION ON THE SK ILLED EMPLOYEES, KNOW-HOW, BUSINESS INFORMATION, BUSINESS CLAIMS ETC . WHICH DO NOT HAVE COMMERCIAL RIGHTS.' 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS-OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE REST ORED. 4. THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION IS THE VALUATION ASSIGNED BY THE A.O. TO THE GOODWILL AND CONSEQUENTLY DISALLOWED THE DEPRECIATION BUT THE LD. CIT(A) HAS REVERSED TH E ADDITION MADE BY THE A.O. 5. BRIEF FACTS RELEVANT TO THE ISSUE UNDER CONSIDER ATION AS EMERGED FROM THE RECORD ARE THAT THE ASSESSEE COMPANY HAS PURCHA SED THREE PROPRIETARY CONCERNS NAMELY (I) TEXANLAB (THANE), (II) TEXANLAB (NORTH) & (III) TEXANLAB (SOUTH) FROM THE RESPECTIVE PROPRIETORS BY SEPARATE SLUMP SALE AGREEMENTS BY TAKING OVER THE ENTIRE ASSETS AND LIABILITIES. THE THREE TRANSFERORS HAD DECLARED LONG TERM CAPITAL GAIN ARISING FROM THE TR ANSACTION. THE ASSESSEE OBTAINED VALUATION REPORT AND ACCORDINGLY ASSIGNED VALUE OF RS. 3.75 CRORES TOWARDS LAB EQUIPMENTS, RS. 8.17 CRORES TO TRADEMAR K AND RS. 2.23 CRORES TO THE GOODWILL. THE ASSESSEE CLAIMED DEPRECIATION ON LAB EQUIPMENT AND TRADEMARK DURING THE YEAR. HOWEVER, NO DEPRECIATION WAS CLAIMED ON GOODWILL. THE A.O. HELD THAT VALUATION OF TRADEMAR K IS NOT FAIR AND REASONABLE AND DID NOT ACCEPT THE VALUE AT RS. 8.17 CRORES ASS IGNED TO THE TRADEMARK AND CONSEQUENTLY THE SAID AMOUNT HAS BEEN ASSIGNED BY T HE A.O. TO THE GOODWILL AND ACCORDINGLY THE CLAIM OF DEPRECIATION WAS DISAL LOWED TO THAT EXTENT. ON ITA 7172 & 7173/M/13 3 APPEAL, THE LD. CIT(A) HAS ALLOWED THE CLAIM OF THE ASSESSEE AND REVERSED THE FINDING OF THE A.O. 6. WE HAVE HEARD THE LD. COUNSEL FOR THE ASSESSEE AS WELL AS LD. D.R. AND CONSIDERED THE RELEVANT MATERIAL PLACED ON RECORD. THE A.O. HAS DISALLOWED THE CLAIM OF DEPRECIATION ON TRADEMARK BY ASSIGNING THE SAID VALUE TO THE GOODWILL. IT IS PERTINENT TO NOTE THAT THE ISSUE O F DEPRECIATION ON GOODWILL IS NOW SETTLED BY THE JUDGMENT OF HONBLE SUPREME COUR T IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. [2012] 348 ITR 302 (SC) WHERE IN THE HONBLE SUPREME COURT VIDE PARA 9 TO 14 HELD AS UNDER:- 9 WE QUOTE HEREINBELOW EXPLANATION 3 TO SECTION 32 (1) OF THE ACT: 'EXPLANATION 3.-FOR THE PURPOSES OF THIS SUB-SECTIO N, 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', S HALL MEAN AN INTANGIBLE ASSET, BEING KNOW-HOW, PATENTS, COPYRIGH TS, TRADE MARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE. A READING THE WORDS ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE IN CLAUSE (B) OF EXPLANATION 3 INDI CATES THAT GOODWILL WOULD FALL UNDER THE EXPRESSION ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF A SIMILAR NATURE. THE PRINCIPLE OF EJUSDEM GENERIS WOULD 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 THE ACT. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. IN THE PRE SENT CASE, THE ASSESSING OFFICER, AS A MATTER OF FACT, CAME TO THE CONCLUSION THAT NO AMOUNT WAS ACTUALLY PAID ON ACCOUNT OF GOODWILL. TH IS IS A FACTUAL FINDING. THE COMMISSIONER OF INCOME-TAX (APPEALS) ( THE CIT(A)', FOR SHORT) HAS COME TO THE CONCLUSION THAT THE AUTHORISED REPR ESENTATIVES HAD FILED COPIES OF THE ORDERS OF THE HIGH COURT ORDERING AMA LGAMATION OF THE ABOVE TWO COMPANIES; THAT THE ASSETS AND LIABILITIE S OF MIS. YSN SHARES AND SECURITIES P. LTD. WERE TRANSFERRED TO THE ASSE SSEE FOR A ITA 7172 & 7173/M/13 4 CONSIDERATION; THAT THE DIFFERENCE BETWEEN THE COST OF AN ASSET AND THE AMOUNT PAID CONSTITUTED GOODWILL AND THAT THE ASSES SEE-COMPANY IN THE PROCESS OF AMALGAMATION HAD ACQUIRED A CAPITAL RIGH T IN THE FORM OF GOODWILL BECAUSE OF WHICH THE MARKET WORTH OF THE A SSESSEE-COMPANY STOOD INCREASED. THIS FINDING HAS ALSO BEEN UPHELD BY THE INCOME-TAX APPELLATE TRIBUNAL (THE ITAT', FOR SHORT). WE SEE N O REASON TO INTERFERE WITH THE FACTUAL FINDING. ONE MORE ASPECT WHICH NEEDS TO BE MENTIONED IS THAT , AGAINST THE DECISION OF THE INCOME-TAX APPELLATE TRIBUNAL, THE REVENUE HAD PREFERRED AN APPEAL TO THE HIGH COURT IN WHICH IT HAD RAISED ONLY THE QUESTION AS TO WHETHER GOODWILL IS AN ASSET UNDER SECTION 32 OF TH E ACT. IN THE CIRCUMSTANCES, BEFORE THE HIGH COURT, THE REVENUE D ID NOT FILE AN APPEAL ON THE FINDING OF FACT REFERRED TO HEREINABOVE. FOR THE AFORESTATED REASONS, WE ANSWER QUESTION NO. (B) ALSO IN FAVOUR OF THE ASSESSEE. 7. A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DEL HI HIGH COURT IN THE CASE OF AREVA T AND D INDIA LTD. VS. DCIT [2012] 34 5 ITR 421 (DELHI). THUS IN VIEW OF THE JUDGMENT OF THE HONBLE SUPREME COURT A S WELL AS HONBLE DELHI HIGH COURT (SUPRA), THE REASSIGNMENT VALUE TO TRADE MARK BY TREATING THE SAME AS GOODWILL BY THE A.O. WILL HAVE NO REVENUE EFFECT BECAUSE THE GOODWILL IS ALSO ELIGIBLE FOR DEPRECIATION U/S 32(1) OF THE ACT AND THEREFORE WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(A) QUA THE ASSESSEE. 8. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH JUNE, 2015. !' # $% &! ' 10-06-2015 ( ) SD/- SD/- (D. KARUNAKARA RAO) (VIJAY PAL RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER $ 4 MUMBAI ; &! DATED 10-06-2015 [ .;../ R.K R.KR.K R.K. , SR. PS ITA 7172 & 7173/M/13 5 ! '#$% &%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. < () / THE CIT(A) 22, MUMBAI 4. < / CIT- 10 MUMBAI 5. ?@( ;;AB , AB , $ 4 / DR, ITAT, MUMBAI E BENCH 6. (DE F / GUARD FILE. ' / BY ORDER, ? ; //TRUE COPY// (/') * ( DY./ASSTT. REGISTRAR) , $ 4 / ITAT, MUMBAI