TaxTMI 
TaxTMI 
2010 (6) TMI 523
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....zing and testing of power transmission line towers, erection of complete transmission lines, supply and erection of substation structures and overhead equipment for railway electrification. The assessee company filed its return of income on 30-11-2006 declaring a total income at a sum of Rs. 9,39,13,086/-. 2. The AO at para 3.2, 3.3 and 3.4 brought out the facts of the composite schemes of arrangement which are extracted for ready reference : "3.2 A composite Scheme of Arrangement (hereafter known as 'the scheme' between the assessee company, KEV Infrastructure Ltd (Formerly KEC International Ltd.), Bespoke Finvest Ltd., KEC Holdings Ltd. and the respective shareholders under Section 391 to 394 of the Companies Act, 1956 was sanctioned by the Hon'ble High Court of Judicature at Mumbai on 27.09.2005. the composite scheme for the sale of investment by the KEC Infrastructure Ltd. to KEC Holdings Ltd and the sale of the Power Transmission business of KEC infrastructure Ltd. to the assessee i.e. KEC international Ltd., the merger of the Bespoke finvest Ltd with KEC holdings Ltd was presented to the High Court of Mumbai on 28.06.2005 and the Scheme was approved by the High Court....
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....bsp; 18,34,970 (j) Buildings - Other than residential ------ 16,46,11,308 1,92,41,105 (k) Buildings -Residential ------ 6,01,45,478 30,14,446 (L) P & M 9,39,20,266 Total 35,43,13,504 339,82,24,990 87,76,16,369 The AO disallowed the depreciation on the assets purchased by the assessee company in a slump sale. The reasons given by the AO are brought out by the CIT(Appeals) at pages 4 and 5 of his order which are extracted below for ready reference : i) The AO has observed that the scheme approved by the Hon'ble High Court u/s 391 to 394 of the Companies Act fulfils all the conditions stipulated u/s.2(19AA) of the Act. Hence, he has treated it as a 'demerger' of PTB from KEC Infrastructure Ltd. The AO has also reproduced the provisions of section 2(19AA) of the I.T. Act at page Nos. 10 to 12 of the assessment order. ii) The AO has discussed the scope of section 2(19AA) as explained in Circular No. 779 dated 14.09.1999 of CBDT and reproduced the relevant portion at page Nos. 12 & 13 of the assessment order. iii) The AO has held that the app....
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.... first appellate authority on the issue of disallowance of depreciation for the detailed reasons given, concluded at para 1.15 at page 9 as follows : "1.15 Keeping in view these facts and circumstances, it is held that the action of the AO is not justified by holding that the company has fulfilled the condition laid down u/s.2(19AA) of the I.T. Act. However, as discussed above, the company is not fulfilling the conditions laid down at clause (iii), (iv) & (v) to section 2(19AA), therefore, it cannot be held as a case of demerger. Therefore, the value adopted by the company on the basis of revaluation of the assets is to be considered for depreciation purpose. Thus, the order of the AO is modified to this extent that the value of assets may be taken as per the valuer's report on tangible assets. " This finding of the first appellate authority that this is not a case of demerger, is not challenged by the Revenue. 4. On the second aspect regarding the claim of depreciation, the first appellate authority at para 1.18 held as follows : "1.18 Keeping in view the facts and circumstances and the legal position of the case that brand account and goodwill account are not reflecte....
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....ovisions of section 32(1)(ii) does not allow depreciation on "Brand" account and "goodwill" account by relying on the decision of Mumbai Bench of the ITAT in the case of R.G. Keswani vs. ACIT in ITA No. 1463/Mum/2005 dated 19-02-2008. He submitted that the assessee company had taken over, as a 'slump sale', the power business of the related concern, under the composite scheme u/s 391 to 394 of the Companies Act and that this composite scheme was sanctioned by the Hon'ble Bombay High Court. He submitted that the purchase consideration was about Rs.143 crores plus the taking over of all the liabilities. He submitted that the AO disallowed the claim of depreciation on two grounds, the first being that this is not a case of slump sale but only a case of demerger and hence the written down value of the transferor company has to be taken and the second ground is that "Brand" is not covered within the ambit of section 32(1)(ii) of the Act. He pointed out that the first appellate authority reversed the decision of the AO with respect to the first ground i.e. whether the take over in question, is a slump sale or a demerger. The first appellate authority was of the view that this is a slump ....
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....tegory. He referred to the dictionary meaning of the term "Brand" in P. Ramanatha Aiyar Dictionary and the judicial dictionary of K.J. Aiyar. He relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Techno Shares and Stocks Ltd. (2009) 184 Taxman 103 (Bom.) and submitted that the Hon'ble Bombay High Court has understood the term "Brand" as an intellectual property right and has equated "Brand" with "Trade Mark". Thus he submitted that the issue is in fact covered in favour of the assessee by the decision of the jurisdictional High Court. He took this Bench through the Finance Bill which introduced section 32(1)(ii), as well as when section 55(2)(a) was introduced and submitted that goodwill was treated differently from the "Brand name" and the intention of the legislature was to equate the "Trade Mark" with a "Brand name". Thus he submitted that the Brand falls within the ambit of section 32(1)(ii) of the Act and the assessee should be granted depreciation. 11. The learned Sr. DR, Mr. S.S. Rana, submitted that the AO considered the transfer as a demerger but the learned CIT(Appeals) has not approved this finding of the AO and had accepted the contention of t....
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....within the ambit of section 32(1)(ii) of the Act. Section 32(1)(ii) reads as follows : "32. (1) [In respect of depreciation of- (i) - - - - - - - - (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998," 15. Under the Trade Marks Act, 1999 (47 of 1999), Section 2(zb) reads as follows : " "trade mark" means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colours; and- (i) in relation to Chapter XII (other than section 107), a registered trade mark or a mark used in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right as proprietor to use the mark; and (ii) in relation to other provisions of this Act, a mark used or proposed to be used in relation to goods or services for the purpose of indicting or so to indic....
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....hile holding so, the Hon'ble High Court at para 23 held as follows : " The expression 'Franchises' is neither defined in the Act nor there is any specific legislation in India relating to franchises. As per Black's Law Dictionary, 8th Edition, the expression franchise denotes :- "1.****** 'When referring to Government grants (other than patents, trademarks, and copyrights), the term 'franchise' is often used to connote more substantial rights, whereas the term 'license' connotes lesser rights. Thus, the rights necessary for public utility companies to carry on their operations are generally designated as franchise rights. On the other hand, the rights to construct or to repair, the rights to practice certain professions and the rights to use or to operate automobiles are generally referred to as licenses....' 3. The sole right granted by the owner of a trademark or tradename to engage in business or to sell a good or service in a certain area. 4. The business or territory controlled by the person or entry that has been granted such a right. Commercial franchise.- A franchise using local capital and management by contracting with third parties to operate a facility....
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.... 42.2 The Act has therefore amended clause (a) of sub-section (2) to provide than the cost of acquisition in relation to trade mark or brand name associated with a business shall also be taken to be the purchase price in case the asset is purchased from a previous owner and nil in any other case." 20. From the above it can be seen that trade mark or brand name has been used in conjunction and as an alternative to each other. Thus it can be concluded that even the legislature has intended that brand name or trade mark are similar intellectual properties. 21. In view of the above, we are of the considered opinion that we have to invariably agree with the argument of Shri S.E. Dastur that the term "Brand" falls within the ambit of section 32(1)(ii) of the I.T. Act and that the assessee is eligible for depreciation on the same. 22. Coming to the decision in the case of Chitra Publicity Co. P. Ltd. (supra) relied upon by the learned DR, the only proposition is that the valuation report cannot be ignored if not properly dislodged by the Revenue. It held that the AO did not consider the report of the registered valuer which were placed before him, in support of the value of the ....
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....on has also not been disputed. Under these circumstances, for the reasons noted in the assessee's appeal, we have to necessarily uphold the order of the first appellate authority and dismiss ground No. 1 of the Revenue. 30. Coming to ground No. 2, the facts are brought out at para 2.5 and 2.6 of the CIT(Appeals)' order at page 12 which are extracted below for ready reference : "2.5 The AO has noticed that in the computation of income, the appellant company has claimed deduction of Rs.6,94,02,867/- u/s 40(a) which was disallowed in earlier years and offered in the case of KEC Infrastructure Ltd. in F.Y. 2004-05. The claim of deduction was made by stating that the payments made out of disallowance of earlier years. The AO has disallowed the claim of the appellant company by holding that the disallowance in earlier years was related to another company M/s KEC Infrastructure Ltd. The assessee company was formed in the year under consideration, therefore, no question of expenditure incurred in earlier years can be considered. Hence, he has disallowed the deduction of Rs.6,94,02,867/- u/s.40(a) of the I.T. Act. 2.6 Similarly, the appellant company has claimed deduction of R.7,04,86....
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.... it is held that the transferee of the business would be eligible to claim the deduction in respect of the liability taken over from the transferor for which the payment was made by the transferee subsequently. The facts of this case are squarely covered by this decision of the Hon'ble Tribunal. Therefore, the AO is directed to allow the expenditure claimed by the appellant company u/s. 40(a) and 43B of the I.T. Act. It is mentioned here that alternately, the transferred company M/s.Summit Securities Ltd. (formerly known as KEC Infrastructure Ltd.) has also claimed this expenditure being the transferor company. I have decided the appeal of the transferor company and dismissed the appeal of the appellant there. Therefore, this ground of appeal is allowed in appellant's case." 32. The Hon'ble Supreme Court in the case of T.Veerbhadra Rao K. Koteswara Rao & Co. (supra) held as follows : "If a business, along with its assets and liabilities, is transferred by one owner to another, a debt so transferred would be entitled to the same treatment in the hands of the successor. The recovery of the debt is a right transferred along with the numerous other rights comprising the subject o....