2012 (12) TMI 1236 - AT - Income Tax

Tribunal affirms depreciation on goodwill & disallows disallowance of TDS on packing material expenses

The Tribunal upheld the CIT(A)'s decision to allow depreciation on goodwill, citing relevant case law supporting goodwill as depreciable under section ... - Issues Involved:1. Depreciation on goodwill.2. Disallowance u/s 40(a)(ia) for non-deduction of TDS on packing material expenses.Summary:Depreciation on Goodwill:The Department appealed against the deletion of disallowance of depreciation on goodwill by the CIT(A). The Assessing Officer (AO) had disallowed the depreciation claim on the grounds that goodwill is not a depreciable asset u/s 32(1)(ii). However, the CIT(A) allowed the depreciation following the ITAT Delhi Bench's decision in the assessee's own case for earlier assessment years and the Supreme Court's ruling in CIT vs. Smifs Securities Ltd., which held that goodwill falls under 'any other business or commercial rights of similar nature' in Explanation 3 to section 32(1). The Tribunal upheld the CIT(A)'s order, noting that the issue had been settled by the Supreme Court and the valuation issue had been resolved in earlier years.Disallowance u/s 40(a)(ia) for Non-Deduction of TDS on Packing Material Expenses:The AO disallowed the assessee's claim for packing material expenses u/s 40(a)(ia) read with section 194C, arguing that the packing material involved job work and required TDS deduction. The CIT(A) deleted the disallowance, stating that the expenses were for the purchase of packing material, which constituted a contract of sale, not a works contract. The CIT(A) relied on the Punjab & Haryana High Court's decision in CIT vs. Deputy Chief Account Officer, Markfed, which held that the purchase of packing material, even if printed, is a contract of sale and not subject to section 194C. The Tribunal confirmed the CIT(A)'s order, agreeing that the predominant object was the sale/purchase of goods, and the provisions of section 194C were not applicable.Conclusion:The Tribunal dismissed the Department's appeals for all assessment years involved, upholding the CIT(A)'s decisions on both issues.