TaxTMI 
TaxTMI 
2010 (2) TMI 762
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....terms of family agreement dated 3-5-2002 read with retirement deed dated 3-5-2002 during the assessment year 2003-04. The assessee claimed that the payment made gave rise to an intangible asset and thus it was entitled to depreciation under section 32(1)(ii) of the Act. It was argued that the amount was paid in lieu of right, title and interest in the assessee's firm and accordingly it amounted to acquire intangible asset. In the course of assessment proceedings for assessment year 2005-06, the assessee also filed a statement showing computation of goodwill based on three years' purchase of last five years profit showing that there was no "goodwill" and in fact there was "bad will" on account of losses. The Assessing Officer rejected the claim of the assessee for depreciation by observing that the assessee had not created any intangible asset in the books of account. On account of payment to the retiring partners, the assessee wanted to take the benefit in the form of depreciation on the so-called intangible asset. The Assessing Officer further observed that the assessee had not claimed depreciation while filing the return of income or by filing the revised return of income. Theref....
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....ccordingly held that the Assessing Officer had rightly held that no intangible assets were created in the books of the firm by this payment and the assessee firm was under no obligation to pay these amounts for any benefit of the firm. 6. Now, before the Tribunal, the contentions raised before the lower authorities were reiterated by the ld. A.R. of the assessee. A detailed note was also filed. The Bench informed the ld. A.R. that the decision of the jurisdictional High Court in the case of CIT v. Techno Shares & Stocks Ltd. [2009] 184 Taxman 103 (Bom.) is against the case of the assessee. The A.R. tried to distinguish the decision of the Hon'ble Bombay High Court and stated that the assessee firm had purchased right, title and interest from the outgoing partners. Therefore, in view of the amended provisions of law, the claim of the assessee was allowable. 7. On the other hand, the ld. D.R., however, placed strong reliance on the orders of the authorities below. 8. We have heard the rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find that the Assessing Officer and the CIT(A) were justified in rejec....
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....intellectual property rights depreciation cannot be allowed on the BSE card. 34. Strong reliance was placed by the counsel for the assessees on the decision of the Apex Court in the case of Scientific Engineering House (P.) Ltd. v. CIT [1985] 49 CTR 386 : [1986] 157 ITR 86 (SC) in support of their contention that wider meaning should be given to the expression 'licences' in section 32(1)(ii) of the Act. There is no merit in the above contention because, firstly, the expressions 'buildings, machinery, plant or furniture' used in section 32(1) of the Act as it stood prior to 1st April, 1998 did not form a class by themselves and each expressions used in section 32(1) of the Act had to be construed independently and, therefore, wider meaning had to be given to each of the expressions used in section 32(1) of the Act. Whereas, the intangible assets enumerated in section 32(1)(ii) of the Act form a class of intellectual property and since the common thread flowing in all the said expressions is the intellectual property rights, the expression 'licences' would take colour from other expressions which are all referable to intellectual property rights. Thus, the decision of the Apex Cou....
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....ming any depreciation. There is nothing in the agreement that the outgoing partners cannot do any business. There is nothing in the agreement that by making payments to the partners the assessee will create any tangible or intangible asset in the books of account. As rightly noted by the Assessing Officer, the assessee has simply passed debit entry and credit entry in respective accounts in the books of account and, therefore, it is not a case where the assessee has created any asset on which depreciation in view of the provisions of section 32(1)(ii) is allowable. The ratio of the decision in the case of M/s. Techno Shares & Stocks Ltd. (supra) squarely applies to the facts of the present case. Following the same and in view of the facts discussed above, we reject the claim of depreciation made by the assessee for both the years under consideration. 9. The remaining common issue in both the appeals is against confirming the interest paid on loans borrowed and utilized for payment to retiring partners as not admissible deduction under section 36(1)(ii) of the Act and in consequently restricting the disallowance at Rs. 14,32,231 and Rs. 31,13,000 respectively for the two years un....
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....ability of the firm and not of the partners. An alternative submission was also made that if these contentions are not accepted, then the computation of disallowance made by the Assessing Officer and confirmed by the CIT(A) is not correct. 13. On the other hand, the ld. D.R. has placed strong reliance on the orders of the authorities below. 14. After considering the submissions and perusing the material on record, we find that the assessee deserves to succeed in these grounds for both the years. The payment of Rs. 4.50 crores was made from the funds of the firm as per clauses of agreement vide the retirement deed. The amount was not credited to the continuing partners accounts but was debited to the funds of the firm. The continuing partners have taken a conscious view that retiring partners should be paid for safeguarding the interests of the firm and for the purpose of better commercial expediency. Accordingly, the payments were made to the retiring partners out of the funds borrowed by the firm or from the funds available with the firm. Therefore, in our considered view, the payments to the partners were for the purpose of commercial expediency and therefore deduction is a....
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....nse of delivery. Therefore, the assessee cannot be asked to perform the impossible. The CIT(A) further observed that when someone sells a derivative contract and another person buys, there is a constructive delivery and the rights of the seller are automatically transferred to the buyer through the mechanism of stock exchange. Therefore, it cannot be said that the goods in question were not delivered. These observations were made by the Tribunal in the case of SSKI Investors Services (P.) Ltd. (supra), and following these observations, the CIT(A) allowed the issue in favour of the assessee. 19. The ld. D.R. placed strong reliance on the order of Assessing Officer. It was further submitted that the issue is now covered by the Special Bench decision of the Tribunal in the case of Shree Capital Services Ltd. v. Asstt. CIT [2009] 121 ITD 498 (Kol.). 20. On the other hand, the ld. A.R. of the assessee filed a written note and stated that the decision of ITAT, Special Bench of Kolkata, is not applicable for the reason that the Special Bench has not taken many of the issues in the right perspective. It was submitted that the assessee made claim before the Assessing Officer that the ....
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....d. A.R. above, in our considered view, are mere extension of the arguments already considered by the Kolkata Special Bench of ITAT in detail. 22. The Kolkata Special Bench of ITAT has held that the term "derivatives" in which underlying asset is share will fall within the meaning of "commodity" used in section 43(5). It has been further held that if it is to held that the transaction in derivatives does not fall in section 43(5), it may make clause (d) and the Explanation thereto below section 43(5) introduced by the Finance Act, 2005, to be redundant. The Special Bench has also held that clause (d) of proviso to section 43(5) is prospective in nature and will be effective from the date on which the legislature made it effective, i.e., 1-4-2006, and will be applicable to the assessment year 2006-07 onwards. 23. Therefore, in view of these facts and circumstances and in view of the decision of the Kolkata Special Bench of ITAT, which is binding in nature, we reverse the finding of CIT(A) and restore the finding of the ld. Assessing Officer for both the years. 24. Ground No. 2 in the appeal of the department for the assessment year 2004-05 is against directing the Assessing ....
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....nies. During the year under appeal, under the Companies Act, 1956, a scheme for weeding out defunct companies known as Simple Exit Scheme was introduced. These companies availed of the said scheme and got extinct during this year and corresponding shares got extinct and became a total loss. The assessee accordingly claimed business loss of Rs. 98,66,092. The Assessing Officer, however, did not allow the claim of the assessee by observing that during the assessment year 2000-01 there was loss in share trading and the entire paid up capital and reserves got eroded completely. Accordingly, the Assessing Officer held that the purchases of share transactions were transactions with group concerns and the assessee was having information, which was withheld by it, and therefore the dates of transactions were not furnished by the assessee to enable the department to probe. Accordingly, he disallowed the claim of the assessee. 26. Detailed submissions were filed before the CIT(A) which are recorded in para 9.4 of his order as under : "9.4 The Authorised Representative has submitted that all the details required by him were by way of telephonic message as late as on 28-12-2006 at 4.00 p....
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....ade since assessment year 2000-01 and accepted as such in all the scrutiny assessments from assessment years 2000-01 to 2003-04. The Assessing Officer could not have readjudicated the matter during the year under appeal as the same did not warrant for consideration during this year as brought to the notice of the Department in the course of assessment by flouting rule of law. (ii) This very issue was matter of appeal right upto ITAT against the Officer disallowing under section 40A(2)(b) of the Act of Rs. 51,39,150 in respect of shares acquired and held as stock in trade for assessment year 2000-01 and the said disallowance has been confirmed both by CIT(A) and ITAT. A copy of the order of ITAT dated 26th March, 2007 is enclosed which speaks for itself. (iii) During this year all that has happened is that in accordance with the Companies Act, 1956 the above companies have become extinct resulting in loss and the Assessing Officer could not sit in judgment of the Assessing Officer who made the Assessment in 2000-01 and has become final as above. (iv) Even otherwise the Assessing Officer has to bring the material on record to establish that apparent i....
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....the ld. Authorised Representative of the appellant. I have perused the Assessment Order and reasons assigned by the Assessing Officer for treating the trading purchases made in shares during assessment year 2000-01 as sham during the year under appeal. The Assessing Officer has therefore disallowed loss claimed on the Appellant on extinction of the shares of the above Companies as a consequence of Simple Exit System (SES) introduced under the Companies Act, 1956. It is an established fact that the Appellant acquired shares of four Private Limited Companies as part of its stock in trade in the business of dealing in shares which business was being carried on from assessment year 1999-2000. Besides the Appellant was also engaged as Investors by making investment in Companies, Mutual Fund etc. This is also an undisputed position. In the course of scrutiny assessment proceedings detailed enquiries were made with regard to business activities as dealer in shares. Initially the Assessing Officer was inclined to treat the Appellant as Investor in shares and on proper submissions being made the Assessing Officer accepted that the Appellant was dealer in shares including the shares in the a....
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....nal basis out of interest in conformity with his finding that trading stock purchased during the assessment year 2000-01 has been held to be sham during the year under consideration. The CIT(A) deleted the disallowance by holding that the same has been computed based on interest paid to Bank during the year. The CIT(A) further noted that the claim of loss in purchase of shares in 2000-01 had been held as genuine and therefore from this angle also the disallowance was not justified. Accordingly, he deleted the disallowance made by the Assessing Officer. 32. After considering the orders of Assessing Officer and CIT(A), we also are in agreement with the finding of ld. CIT(A). Firstly, there is no provision in the Act to disallow notional interest. Secondly, the loss occurred on account of purchase of shares in 2000-01 had been held as genuine by us in the foregoing paragraphs. Therefore, we confirm the order of CIT(A) in this respect also. 33. The remaining issue is against directing the Assessing Officer to allow carry forward of loss of Rs. 11,87,224. In the return of income, the assessee returned long-term capital loss of Rs. 11,87,224 and claimed carry forward of the same. T....