DCIT 1(3), MUMBAI V. WORLD WIDE MEDIA P. LTD, MUMBAI

ITA 728/MUM/2014

• Counselvise Citation: 72819914 RSA 2014
• Duration Of Justice: 1 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 31-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJUSHA TODANKAR; JAGAT MEHTA
• Assessee Lawyers: S T BIDARI SR
• Keywords: Depreciation; Cost of acquisition; Valuation report
• Section: 32; 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH ES , G MUMBAI . , , , BEFORE SHRI D.KARUNAKARA RAO , A CCOUNTANT MEMBER AND SHRI AMIT SH UKLA , J UDICIAL M EMBER ITA NO. 728 /MUM/201 4 ASSE S SMENT YEAR - 2010 - 11 D .C.I.T. R. NO.564 , 5 TH FLOOR, AAYAKAR BHAVAN , M.K.ROAD, MUMBAI - 400020 / VS. M/S WORLD WIDE MEDIA LTD. 4 TH FLOOR, THE TIMES OF INDIA BLDG. DR.D.N.ROAD, MUMBAI - 400020 . / PAN : AAADCM7563Q ( / REVENUE ) .. ( / RESPONDENT ) C.O. NO. 55 /MUM/201 5 (ARISING OUT OF ITA NO.728/MUM/2014) ASSES SMENT YEAR - 2010 - 11 M/S WORLD WIDE MEDIA LTD. 4 TH FLOOR, THE TIMES OF INDIA BLDG. DR.D.N.ROAD, MUMBAI - 400020 / VS. D.C. I.T. R. NO.564, 5 TH FLOOR, AAYAKAR BHAVAN, M.K.ROAD, MUMBAI - 400020 ./ PAN : AAADCM7563Q ( / APPELLANT ) .. ( / REVENUE ) / REVENUE BY : SHRI S.T. BIDARI (SR. AR) - DR / APPELLANT BY : SMT. MANJUSHA TODANKAR & SHRI JAGAT MEHTA / DATE OF HEARING : 13/07 /201 5 / DATE OF PRONOUNCEMENT : 13 /07/2015 2 ITA NO. 728/MUM/201 4 & C.O.55/M/2015 . M/S WORLD WIDE MEDIA PVT. LTD. / ORDER PER AMIT SHUKLA , J.M. THE AFORESAID APPEAL HAS BE EN FILED BY THE REVENUE AND CROSS OBJECTION IS BY THE ASSESSEE AGAINST THE ORDER DATED 20/09/2 013 PASSED BY THE LD . CIT(A) 2 , MUMBAI, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) OF THE ACT FOR THE ASSESSMENT YEAR 2010 - 11. THE REVENUE HAS RAISED FOLLOWIN G GROUNDS: - 'WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DIRECTING THE A.O . TO ALLOW DEPRECIATION @ 25% ON THE ACTUAL COST - OF THE COPY RIGHTS AND TRADEMARKS AS PER THE DEED OF ASSIGNMENT BETWEEN THE ASSESSEE AND B ENNETT COLEMAN & CO. LTD.' 'WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW , THE CIT(A) ERRED IN DIRECTING TO ALLOW DEPRECIATION @ 25% ON THE ACTUAL COST OF THE COPY RIGHTS AND TRADEMARKS AS PER THE DEED OF ASSIGNMENT BETWEEN THE ASSESS EE AND BENNETT COLEMAN & CO. LTD. RELYING UPON THE OBSERVATIONS OF THE HON'BLE BOMBAY HIGH COURT IN R.B. BANSILAL ABIRCHAND SPINNING AND WEAVING MILLS VS CIT (75 ITR PAGE 260) WHEREAS, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS IN ITS CROSS OBJECTION. HA VING HELD BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ['CIT(A)'] THAT THE AMOUNTS PAID BY THE APPELLANT WAS FOR PURCHASE OF TRADEMARKS AND COPYRIGHTS AND THAT THE APPELLANT IS RIGHTLY ENTITLED TO CLAIM DEPRECIATION THEREON AT THE RATE OF 25% UNDER SECTION 32 OF THE INCOME - TAX ACT, 1961 ('THE ACT'), THE LEARNED CIT(A) OUGHT TO HAVE HELD THAT EVEN IN ANY CASE, IF THE AMOUNT ADJUSTED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX - L (3) IS REGARDED AS GOODWILL, THE DEPRECIATION ON SUCH GOODWILL IS ALSO AL LOWABLE IN VIEW OF THE ORDER OF HON'BLE 3 ITA NO. 728/MUM/201 4 & C.O.55/M/2015 . M/S WORLD WIDE MEDIA PVT. LTD. SUPREME COURT DECISION IN THE CASE OF CIT VS. SMIFS SECURITIES LTD. [(2012) 348 ITR 302 (SC) 2. BEFORE US, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT SIMILAR ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEARS 2005 - 06 AND 2006 - 07 VIDE ORDER DATED 31/01/2014. 3. AFTER CONSIDERING THE RELEVANT FINDING GIVEN IN IMPUGNED ORDERS, WE FIND THAT THE CIT(A) HAS RELIED UPON THE APPE LLATE ORDERS FOR THE EARLIER YEARS AND HELD THAT THE ASSESS EE IS ENTITLE FOR DEPRECIATION ON THE ACTUAL COST OF ACQUISITION ON COPY RIGHTS AND TRADEMARKS. THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.4573/MUM/2009, ORDER DATED 31 ST JANUARY 2014, AFTER OBSERVING AND HOLDING AS UNDER : - 10. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AS WELL AS THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE HAS BEEN FORMED IN THE RATIO OF 50:50, AS A JOINT VENTURE COMPANY BETWEEN BBCL AND BBC. IT HAS ACQUIRED THE BUSINESS OF MAGAZINE AND EVENT DIVISION OF BCCL AS AN ON - GOING CONCERN ON A SLUM SALE BASIS. THE BUSINESS WHICH WAS ACQUIRED, CONSISTED OF PUBLICATION AND DISTRIBUTION OF POPULAR MAGAZINE LIKE 'FAMINA' AND 'FILMFARE' AND ALSO THE ORGANISER OF MEGA EVENTS LIKE FILMFARE AWARDS'. BEFORE ACQUIRING THE BUSINESS, VALUATION FROM PROFESSIONALS WAS OBTAINED WHEREIN, THE TOTAL VALUATION OF TANGIBLE AND INTANGIBLE ASSETS WERE VALUED BETWEEN RS. 91 TO 99 CRORES AS ON 31ST MARCH 2005. BASED ON SUCH VALUE, THE AGREEMEN T FOR TRANSFER OF BUSINESS UNDERTAKING WAS EXECUTED BETWEEN THE PARTIES. THE CASE OF THE REVENUE IS THAT WHILE VALUING THE INTANGIBLE ASSETS IN THE FORM OF COPY RIGHT AND TRADE MARK, THE ASSESSEE HAS NOT ASCRIBED ANY VALUE FOR GOODWILL AND THIS HAS LED TO CLAIM OF HIGHER OR MORE DEPRECIATION ON INTANGIBLE ASSETS VIZ. TRADE MARK AND COPY RIGHTS, AS THE DEPRECIATION CANNOT BE ALLOWED FOR GOODWILL. THE ASSESSING OFFICER, HAS ASCRIBED THE VALUE OF GOODWILL IN HIS OWN WAY AT RS. . 25 4 ITA NO. 728/MUM/201 4 & C.O.55/M/2015 . M/S WORLD WIDE MEDIA PVT. LTD. CRORES AND THEREBY REDUCING T HE VALUE OF OTHER INTANGIBLE ASSETS OF TRADE MARK AND COPY RIGHTS. THIS HAS BEEN DONE BY HIM AFTER HOLDING THAT FIRSTLY, THE VALUATION REPORT GIVEN BY M/S. LODHA & CO., IS NOT APPROPRIATE AND, SECONDLY, THE ASSESSEE HAS COLLUSIVELY TRIED TO REDUCE THE LIAB ILITY OF INCOME TAX BY CLAIMING DEPRECIATION WITH REFERENCE TO THE ENHANCED COST. 11. ONE VERY IMPORTANT ASPECT IN THE PRESENT CASE WHICH IS WORTH CONSIDERATION IS THAT THE REVENUE IS NOT CHALLENGING THE OVERALL CONSIDERATION PAID BY THE ASSESSEE FOR ACQU IRING THE BUSINESS I.E., RS. 91 CRORES. IF THE AMOUNT ON ACCOUNT OF FOREIGN EXCHANGE GAIN IS TAKEN INTO ACCOUNT THIS COMES TO RS .96 CRORES. OUT OF THE AMOUNT, THERE IS NO DISPUTE WITH REGARD TO THE VALUE OF CURRENT ASSETS AT RS . 11 CRORES. THE SOLE DISPUT E IS WITH REGARD TO ADOPTION OF THE VALUE OF THE COPY RIGHT AND TRADE MARK. THE ASSESSEE'S CASE IS THAT ONCE THE COPY RIGHT AND TRADE MARK HAS BEEN VALUED OR TAKEN INTO CONSIDERATION THEN, THERE IS NO REQUIREMENT OF VALUING GOODWILL AND IN FACT THERE IS NO GOODWILL ON SUCH ACQUISITION OF A DIVISION. IN ANY CASE, IF THERE IS GOODWILL THEN THE SAME IS PAID FOR, WHICH IS WITHIN THE SUM OF OVERALL CONSIDERATION PAID FOR RS. 91 CRORES. INSOFAR AS THIS CONTENTION OF THE ASSESSEE IS CONCERNED, THAT THERE IS NO ACQ UISITION OF GOODWILL WHILE PURCHASING THE MAGAZINE AND EVENT DIVISION, WE ARE NOT MUCH INCLINED TO AGREE ON SUCH CONTENTION. THE REASON BEING THAT THIS DIVISION CONSISTS OF PUBLICATION AND DISTRIBUTION OF VERY POPULAR MAGAZINES LIKE FEMINA AND FILMFARE, WH ICH HAS A VERY HUGE CUSTOMER BASE AND HAS A VERY HIGH BRAND VALUE FOR MORE THAN SIXTY YEARS. THE GOODWILL IS A KIND OF BENEFIT ARISING FROM THE REPUTATION OF A BRAND OR BUSINESS WHICH IS GENERATED WITH THE PASSAGE OF TIME. GOODWILL IS A GENERIC TERM WHICH HAS A VERY WIDER MEANING AND IS GENERATED WHILE CARRYING ON THE BUSINESS AND THE BRAND VALUE ASSOCIATED WITH THE PRODUCTS. THE GOODWILL CAN BE IN THE FORM OF COPY RIGHTS, PATENT, TRADE MARK, MARKETING RIGHTS, PARTICULAR CUSTOMERS, FRANCHISEE, BRAND VALUE, ETC. IN THIS CASE, THE ASSESSEE HAS ONLY TAKEN THE PART OF THE GOODWILL IN THE FORM OF TRADE MARK AND COPY RIGHT, HOWEVER, THAT ALONE CANNOT BE SAID TO BE A PART OF GOODWILL, ESPECIALLY WHEN THE ASSESSEE HAS ACQUIRED SUCH A HIGH END BRAND PRODUCTS IN THE F ORM OF ONE OF THE MOST POPULAR MAGAZINE AND RIGHT TO ORGANIZE MEGA EVENTS UNDER SUCH BRAND NAME. THEREFORE, PART OF THE ACQUISITION COST CAN ALSO BE SAID TO BE FOR GOODWILL OF THE BRAND PRODUCT. HOWEVER, THE MANNER IN WHICH THE ASSESSING OFFICER HAS ADOPTE D THE VALUE OF THE GOODWILL IS ABSOLUTELY INCORRECT AND WITHOUT ANY METHOD, WHICH IS GENERALLY ADOPTED FOR EVALUATING THE 5 ITA NO. 728/MUM/201 4 & C.O.55/M/2015 . M/S WORLD WIDE MEDIA PVT. LTD. GOODWILL. IN THIS CASE, ONCE THERE IS NO DISPUTE THAT THE TOTAL CONSIDERATION FOR TANGIBLE AND INTANGIBLE ASSETS IS FOR RS. 91 CRORES, WHICH HAS ALSO BEEN ACCEPTED BY THE A.O., THEN IT IS PRESUMED THAT SUCH CONSIDERATION ALSO INCLUDES GOODWILL ON ACCOUNT OF BRAND OR PRODUCT BESIDES TRADE MARK AND COPY RIGHTS. 12. NOW, THE ISSUE WHETHER THE DEPRECIATION CAN BE ALLOWED ON SUCH INTANGIBLE ASSET IN THE FORM OF GOODWILL ALSO OR NOT IS NO LONGER RES INTEGRA, AS THE HON'BLE SUPREME COURT IN SNIFFS SECURITIES LTD. (SUPRA) BESIDES VARIOUS OTHER HIGH COURTS ALSO, HAVE HELD THAT THE DEPRECIATION IS TO BE ALLOWED ON SUCH INTANGIBLE ASSETS WHICH CONS TITUTE GOODWILL. ONCE THE DEPRECIATION ALLOWABLE ON GOODWILL AT THE SAME RATE ON WHICH THE ASSESSEE HAS CLAIMED DEPRECIATION ON TRADE MARK AND COPY RIGHT, THEN IT IS IMMATERIAL TO DISALLOW THE ENTIRE CLAIM OF DEPRECIATION MADE BY THE ASSESSEE ON INTANGIBLE ASSETS. THE REASON BEING THAT, THE AGGREGATE VALUE OF ALL THE INTANGIBLE ASSETS IS RS. 80 CRORES AND DEPRECIATION IS TO BE ALLOWED AT 25% ON THIS COST, THEN IT DOES NOT MAKE ANY DIFFERENCE WHETHER PART OF THE DEPRECIATION IS TO BE ASCRIBED FOR GOODWILL OR NOT, BECAUSE RESULTANTLY, THERE WOULD BE NO EFFECT ON ASSESSEE'S QUANTUM OF CLAIM OF DEPRECIATION. THE VERY PREMISE OF THE ASSESSING OFFICER TO INVOKE THE PROVISIONS OF EXPLANATION 3 TO SECTION 43(1) AND TO ASCRIBE THE VALUE OF GOODWILL GETS VITIATED WHEN THE LAW HAS BEEN SETTLED BY THE HON'BLE SUPREME COURT THAT THE DEPRECIATION IS TO BE ALLOWED ON GOODWILL ALSO AS ANY OTHER INTANGIBLE ASSET. THUS, IT WILL NOT MAKE ANY DIFFERENCE IN THE PRESENT CASE TO SEGREGATE THE VARIOUS INTANGIBLE ASSETS FOR THE PURPO SE OR MAKING ANY DISALLOWANCE ON ACCOUNT OF DEPRECIATION. THUS, THE GROUNDS RAISED BY THE REVENUE ARE TREATED AS DISMISSED FOR THE REASONS GIVEN ABOVE. 4. THUS, RESPECTFULLY, FOLLOWING THE PRECEDENCE OF EARLIER ORDER, WE UPHOLD THE ORDER OF THE CIT(A) DI RECTING THE AO TO ALLOW THE DEPRE C I ATION AT THE RATE OF 25% ON THE ACTUAL COST OF COPY RIGHTS AND TRADEMARKS AS PER THE DEED OF ASSIGNMENT BETWEEN THE ASSESSEE AND BENNETT COLEMAN & CO. LTD. 5. AS REGARDS, THE CROSS OBJECTION RAISED BY THE ASSESSEE, THIS I SSUE ALSO STAND S COVERED BY THE DECISION OF THE TRIBUNAL IN THE 6 ITA NO. 728/MUM/201 4 & C.O.55/M/2015 . M/S WORLD WIDE MEDIA PVT. LTD. AFORESAID MANNER. ACCORDINGLY, THE GROUNDS OF THE REVENUE IS DISMISSED , WHEREAS , THE CROSS OBJECTION RAISED BY THE ASSESSEE IS TREATED AS ALLOWED AS ALREADY DEPRECIATION HAS BEEN ALLOWED ON GOODWILL BY THE TRIBUNAL. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED AND CROSS OBJECT ION OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 / 07 / 201 5 . 13 / 07 / 2015 , SD/ - SD/ - D.KARUNAKARA RAO AMIT SHUKLA ( ACCOUNTANT MEMBER ) ( JUDICIAL MEMBER ) MUMBAI , DATED: 13 /07/2015 SHEKHAR , P.S. / COPY OF THE ORDER FORWARDED TO : ( 1 ) / THE ASSESSEE; ( 2 ) / THE REVENUE; ( 3 ) ( ) / THE CIT(A ) ; ( 4 ) / THE CIT, MUMBAI CITY CONCERNED; ( 5 ) , , / THE DR, ITAT, MUMBAI ; ( 6 ) / GUAR D FILE / TRUE COPY / BY ORDER / / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI