Tribunal rules in favor of assessee on trademark acquisition; depreciation allowed for block of assets

The Tribunal held that the total consideration was for the acquisition of four trademarks, rejecting the assessee's claim that it was solely for one trademark. Depreciation was allowed for the entire block of trademarks, even if not all were used simultaneously. Additional legal grounds of appeal were admitted without further fact-finding. The AO's adjustment of actual cost without complying with procedural requirements was deemed improper. The assessee's appeal was partly allowed, granting depreciation for the block of assets. Other grounds of appeal were considered irrelevant.

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Issues Involved:
1. Apportionment of total consideration among multiple trademarks.
2. Eligibility for depreciation on trademarks not put to use but ready for use.
3. Admissibility of additional grounds of appeal.
4. Compliance with Explanation 3 to section 43(1) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Apportionment of Total Consideration Among Multiple Trademarks:
The assessee argued that the total consideration of Rs. 1.25 crores was paid solely for the "Jealous" trademark, and the other trademarks ('Analyse', 'Detour', and 'JLS') were ancillary with no value. The AO, unable to determine the cost of each trademark, apportioned the total payment equally among the four trademarks, disallowing depreciation on the three not put to use. The CIT(A) upheld this apportionment, disregarding a letter from the assignor confirming that the payment was only for the "Jealous" trademark. The Tribunal found that the agreement clearly indicated the acquisition of four trademarks for Rs. 1.25 crores, rejecting the assessee's claim that the payment was only for one trademark.

2. Eligibility for Depreciation on Trademarks Not Put to Use But Ready for Use:
The assessee contended that even if the trademarks were not used, they were 'ready for use' and thus eligible for depreciation. The Tribunal agreed, stating that under the amended provisions effective from the assessment year 1988-89, individual items within a block of assets are not to be considered separately for depreciation purposes. It was held that if one asset in the block is used, the entire block qualifies for depreciation. The Tribunal emphasized that it is not necessary for all items in the block to be used simultaneously, thus allowing the depreciation claim for the entire block.

3. Admissibility of Additional Grounds of Appeal:
The assessee sought to admit additional grounds, arguing that these were pure questions of law and did not require further fact-finding. The Tribunal admitted the additional grounds, referencing the Supreme Court decision in National Thermal Power Co. Ltd. v. CIT and the Karnataka High Court decision in Gundathur Thimmappa & Sons v. CIT. The Tribunal noted that the issues raised were legal and did not necessitate further investigation, thus allowing their admission for adjudication.

4. Compliance with Explanation 3 to Section 43(1) of the Income-tax Act, 1961:
The assessee argued that the AO's reworking of the actual cost of the trademarks without satisfying the conditions of Explanation 3 to section 43(1) was incorrect. The Tribunal noted that the AO did not obtain prior permission from the Joint Commissioner nor established an intention to avoid tax, as required under the Act. The Tribunal referenced several rulings supporting the necessity of adhering to these procedural requirements. Consequently, the Tribunal found the AO's adjustment of the actual cost to be improper.

Conclusion:
The Tribunal concluded that the lower authorities were not justified in rejecting the depreciation claim on the block of trademarks. It was held that once assets are included in a block and used for business purposes, the entire block qualifies for depreciation, regardless of the individual use of each asset. The assessee's appeal was partly allowed, granting depreciation at the prescribed rate for the block of assets. Other grounds of appeal were deemed infructuous in light of this finding.

Order Pronouncement:
The order was pronounced in court on 17th Nov, 2021.

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