TaxTMI 
TaxTMI 
2013 (7) TMI 12
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....members of the society was an Intangible asset" falling within the meaning of the definition contained intangible asset as laid down in section 32(1) (ii) of the Income Tax Act, 1961 and therefore the Appellant was entitled to claim the depreciation at Rs.99,25,284/-. 3. The learned Commissioner of Income Tax (Appeals)-IV, Hyderabad, failed to note that there could not be any disallowance under section 14A of the Income Tax Act, 1961 as the entire investments in mutual funds were not made from borrowed funds but from the proceeds of fresh issue of equity shares and therefore erred in directing the Assessing Officer to work out the disallowance under section 14A of the Income Tax Act in terms of Rule 80 of the Income Tax Rules, 1962. 4. Without prejudice to the aforesaid ground, the learned Commissioner of Income Tax (Appeals)-IV, Hyderabad, failed to note that exempted dividend income from mutual funds was Rs.1,31,616/- while the disallowance of expenditure was at Rs.2,15,000/- which was much more than the exempted dividend Income and therefore ought to have deleted the disallowance of Rs.2,15,000/- 5.Any other ground or grounds that may be urged at the time of hearing." ....
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.... or any other business or commercial rights of similar nature. The Assessing Officer was of the view that the intangible asset claimed to have been acquired by the assessee does not come under any of the identified assets appearing in the depreciation schedule. The Assessing Officer was also of the view that since the assessee had acquired part of the already existing business of SKS the said asset had not been created during the course of business of the assessee, hence cannot be considered to be a business or commercial rights of similar nature. The Assessing Officer observed that the amount of Rs.3,97 crores paid by the assessee for acquisition of clients who were already enrolled with SKS and participating in their finance business. The Assessing Officer further noted that subscribers were already having a participation in the finance business of SKS and had got finance assistance from that concern and were in the process of repayment of the financial facility already availed. Assessing Officer felt that the fruits of the business were being enjoyed by SKS. Whereas, the assessee had only acquired the clientele available on the rolls of SKS by making a lumpsum payment. The Asses....
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....filed an appeal before the CIT (A). During the course of hearing before the CIT (A), it was contended by the assessee that it had entered into understanding with Swayam Krishi Sangham Society (SKSS), an NGO engaged in microfinance and acquired the entire business of micro finance of SKS through a business transfer agreement. The acquisition was made as a slump sale. While arriving the value of the business besides physical and actual assets, a value for creating a customer base of more than 1,10,000 borrowers, related brand recall value, trust and faith on the business concept, including the usage and adoption of SKSS logo and brand, which the source of income to the business that was being acquired was also arrived at Rs.3,97,00,000 included in the total consideration of Rs.5.127 crores. It was submitted that the acquisition made by the assessee is not about the borrowers, but about the copy right and trade mark in the usage of the micro finance lending and the commercial rights to use a methodology to effect near 100% recovery through groups, group recognition tests, training methodology to group members, recruitment method, criteria for selection and motivation and monitoring fu....
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....ess the customers of the society is an intangible asset which is used for the purpose of business of the assessee. Referring to the decision in the case of Ravindra Kumar Jain vs. CIT (263 ITR 368), Upendra M. Dalal (89 ITD 629), Techno Shares and Stocks Limited vs. (101 TTJ 349), it was submitted that even the membership card of stock exchange though not specified u/s 32(1) (ii) is held to be a right to carry on business or profession and therefore would be eligible for depreciation as intangible asset. It was submitted that the term "business or commercial rights" has not been defined in the Act, hence is to be assigned the meaning as has been assigned to the same in various judicial precedents. It was submitted that the right acquired by the assessee being essential to do the business is necessarily a business or commercial rights. In support of such contention, the assessee relied on the decision of Hon'ble Bombay High Court in case of I.L. and FS Investment Manager's Ltd. ITO (298 ITR 32), Income-tax Appellate Tribunal, Mumbai Bench decision in Skyline Caterers Pvt. Ltd. Vs. ITO (20 SOT 260) and Income-tax Appellate Tribunal Chennai Bench in case of ITO vs. Medico Technologies....
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....w that the customer base acquired by the assessee cannot be termed as know-how, patent, copy right or trade mark or franchise. It also cannot be considered a licence or business or commercial right of similar nature as it does not relate to any intellectual property whereas section 32(1)(ii) contemplate depreciation in respect of those license or right which relate to intellectual property. In this context, the CIT (A) relied upon a decision of Hon'ble Bombay High Court in case of CIT vs. Techno Shares and Stocks Limited and others (225 CTR 337) wherein the Hon'ble High Court held that the expression licence is a very wide term and it would embrace within its sweep not only the permission to use immovable property for lawful purposes but also permission to carry on any trade business, profession etc., including the right to acquire the intellectual property rights. It was held that construing the expression "license" in section 32(1)(ii) widely so as to apply to all types of licenses relating to intangible assets would defeat the object of the Act because depreciation u/s 32 is intended to a limited category of intangible asset. It was held that section 32(1)(ii) contemplates busin....
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....l) ii) The AP Paper Mills Ltd. Vs. ACIT (2010) 128 TTJ (Hyd) 596 iii) CIT vs. Hindustan Coca Colas Beverages Pvt. Ltd (331 ITR 192) (Del) iv) Skyline Caterers P. Ltd. Vs. ITO (306 ITR (AT) 369) v) CIT vs. SMIFS Securities Ltd. (348 ITR 302) (SC) vi) M/s India Capital Markets Pvt. Ltd. Vs. DCIT (56 SOT 32) The learned departmental representative, on the other hand, supporting the order of the CIT (A) submitted that the assessee has only acquired the right over the SKS and not over all the customers. It was submitted that even assuming that the assessee has acquired right over the clients still then it cannot be said to be an intangible right as defined u/s 32(1)(ii) of the Act read with rule-5 of the schedule in the Appendix of IT Rules. Therefore, depreciation cannot be allowed to the assessee. 10. We have heard rival submissions of the parties and perused the material on record. We have also carefully applied our mind to the decisions cited before us. As would be evident from the orders of the revenue authorities, assessee 's claim of depreciation was disallowed by holding that the acquisition of client base of SKS society is neither an intangible asset nor a ....
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....er to ensure that the approvals from the lenders are duly obtained,...." 11. Clause-3 of the MOU even provided for transfer of employees of SKS Society. Therefore, reading of the MOU as a whole gives an impression that the entire business of SKS Society was transferred to the assessee company as a going concern by way of slump sale. This also included the acquisition of rights over more than 110000 existing clients of SKS Society. This fact has also not been disputed by the Assessing Officer or CIT (A). The Assessing Officer even has accepted it as a capital asset. However, both the Assessing Officer as well as CIT (A) have disallowed the claim of depreciation solely on the ground that the right acquired over the clients of SKS Society is not an intangible asset u/s 32(1)(ii) of the Act. At this stage it would be appropriate to look into the provision contained u/s 32(1)(ii) of the Act. "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,....
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....of ejusdem generis held as under : "In the present case, applying the principle of ejusdem generis, which provides that where there are general words following particular and specific words, the meaning of the latter words shall be confined to things of the same kind, as specified for interpreting the expression "business or commercial rights of similar nature" specified in section 32(1)(ii) of the Act. It is seen that such rights need not answer the description of "know-how, patents, trade marks, licences or franchises" but must be of similar nature as the specified assets. On a perusal of the meaning of the categories of specific intangible assets referred to in section 32(1)(ii) of the Act preceding the term "business or commercial rights of similar nature", it is seen that the aforesaid intangible assets are not of the same kind and are clearly distinct from one another. The fact that after the specified intangible assets the words "business or commercial rights of similar nature" have been additionally used, clearly demonstrates that the Legislature did not intend to provide for depreciation only in respect of specified intangible assets but also to other categories of inta....
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....erpreting the expression "any other business or commercial right of similar nature" and by applying the said principle goodwill is held to be an intangible asset. In case of Hindustan Coca Cola Beverages Pvt. Ltd. (supra) the Hon'ble Delhi High Court upholding the view of the Income-tax Appellate Tribunal, Delhi Bench in treating goodwill as an intangible asset held that the meaning of business or commercial rights of similar nature if understood in the backdrop of section 32(1)(ii) of the Act would mean commercial rights or such rights which are obtained for effectively carrying on business and commerce and commerce as is understood is a wider term which encompasses in its fold many of facet . The Hon'ble High Court held that any right which is obtained for carrying on the business with effectiveness is likely to fall or come within the sweep of meaning of intangible asset. The Income-tax Appellate Tribunal Mumbai Bench in case of Skyline Caterers P. Ltd. Vs. ITO [306 ITR (AT) 369] has held that any other business or commercial rights of similar nature include such rights which can be used as a tool to carry on the business. The Income-tax Appellate Tribunal Hyderabad Bench in cas....
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....including the customer base is an intangible asset against the entire World as held by the Hon'ble Delhi High Court. Therefore, the facts of the case considered in the light of the ratio laid down by various judicial precedents referred to hereinabove, in our view, the client acquisition cost paid by the assessee is towards acquiring an intangible asset and therefore eligible for depreciation u/s 32(1)(ii) of the Act. In aforesaid view of the matter, we direct the Assessing Officer to allow the assessee's claim of depreciation. Hence, the grounds raised by the assessee are allowed. 15. The next issue as raised in ground Nos. 3 and 4 is with regard to disallowance of proportionate expenditure u/s 14A of the Act on earning of exempted income. During the assessment proceedings, the Assessing Officer noticed from the computation statement that the assessee has received dividend from mutual fund amounting to Rs.1,13,616/- which is claimed as exempt u/s 10(35) of the Act. The disallowed amount of Rs.2,15,000/- treating it to be the expenditure incurred for earning the exempted income u/s 14A of the Act by observing that assessee has not furnished any details. The assessee challenged t....
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....'ble Bombay High Court in case of Godrej Boyce Mfg. Co. Ltd vs. DCIT(supra) had held that the Assessing Officer should determine as to whether the assessee has incurred any expenditure (direct or indirect ) in relation to dividend income/income from mutual fund which does not form part of the total income. The Hon'ble High Court further held while making that determination the Assessing Officer should provide a reasonable opportunity to the assessee for producing its accounts or relevant material having a bearing on the facts and the circumstances of the case. In the case of the assessee, the Assessing Officer has not afforded adequate opportunity to the assessee and has not given any finding whether the assessee has incurred direct or indirect expenditure for earning dividend income from mutual fund. The CIT (A) has also not given any conclusive finding in this regard. Further, the direction of the CIT (A) to determine the disallowance by applying Rule 8D is also not correct as the Hon'ble Bombay High Court in case of Godrej Boyce Mfg. Co. Ltd (supra) has held that provisions of Rule 8D is not applicable for the asst year 2006-07. In aforesaid view of the matter, we remit this iss....
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....es it should be regarded as solely and exclusively for the purpose of business and no disallowance of interest payment should be made. The Assessing Officer however did not accept the submissions of the assessee and disallowed an amount of 23,03,418. 27. The CIT (A) after considering the submissions of the assessee sustained the addition by observing that the shares to be acquired by the MD or the employees were to be their personal properties. He further observed that the assessee has not been able to establish that but for the acquisition of share by the MD or the employees the assessee could have been put to some financial disadvantage. He further observed that the assessee has also not established that the loan was given to the MD or the employees to promote the business of the assessee company itself. Accordingly, the CIT (A) held that proportionate interest has to be disallowed as funds of the company were diverted for non business purposes by providing interest free loans. 28. We have heard rival submissions of the parties and perused the material on record. It is the contention of the assessee that the interest free loans were advanced due to commercial expediency and....
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....ount of 9,63,944/- relate to interest on NPAs and has been taken on accrual basis. It is nobody's case that the assessee has actually received the interest income. The prudential norms of RBI or NBFCs have laid down that income from NPAs may not be recognised on accrual basis. The Hon'ble Supreme Court in case of Southern Technologies Ltd. Vs. JCIT (320 ITR 577) held that income recognition with regard to NPAs should be as per section 45Q of the RBI Act. Following the aforesaid decision of Hon'ble Supreme Court, the Hon'ble Delhi High Court in case of CIT vs. Vasisth Chay Vyapar Ltd., and another (330 ITR 440) held that where even the principal amount itself had become doubtful of recovery it cannot be said that interest thereupon had accrued. The Hon'ble Delhi High Court further held that having regard to the provisions of section 45Q of the RBI and prudential norms issued by the RBI in exercise of its statutory powers where interest was not received on non performing asset and the possibility of recovery was almost nil it could not be treated to have been accrued in favour of the assessee. Therefore, considered in the light of the ratio laid down as above it cannot be said that i....