TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 280
X X X X Extracts X X X X
X X X X Extracts X X X X
....ised an additional ground before us for the first time as below:- "That on the facts and in the circumstances of the case, depreciation u/s 32(1)(ii) may be allowed on the amount of Rs. 1,85,44,612/- allocated by the appellant in its accounts towards "goodwill" as part of consideration to M/s ECE Industries Ltd. together with the latter"s "business and commercial" rights under the agreement dated October 16, 2002." 4. The Assessee vide its application for additional ground made under Rule 11 of ITAT Rules, 1963, has sought to claim depreciation on "Goodwill" in terms of Sec. 32(1)(ii) of Act. Since this ground has been raised by the Assessee by way of an additional ground, before dealing with this matter on merits it is imminent for us to dispose of this application regarding maintainability of "Additional Grounds" raised by the Assessee. 5. Brief facts relevant to the issue under consideration are - The Assessee is a Private Limited Company incorporated on 1st February 1990. During the relevant year, the Assessee acquired the running business in terms of "Undertaking Sale Agreement" dated 16th October 2002 (hereinafter referred to as the "Agreement") of M/s. ECE Industries Limi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that assessment order will have to be reopened and the Act does not contemplate such reopening of assessment. Therefore the ld DR submitted that if no claim for depreciation on good will was made in the return of income then deduction should not be allowed. 9. We have heard both the parties and have perused the case-laws cited before us in this respect. We find that, the following case laws establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims not made in the return filed by it. It is necessary for us to refer to some of these decisions. The first is with respect to an observation of the Supreme Court in Jute Corpn. of India Ltd. v CIT (supra) [1991] 187 ITR 688/[1990] 53 Taxman 85. 10. In Jute Corpn. of India Ltd. (supra) for the assessment year 1974-75 the appellant did not claim any deduction of its liability towards purchase tax under the provisions of the Bengal Raw Jute Taxation Act, 1941, as it entertained a belief that it was not liable to pay purchase tax under that Act. Subsequently, the appellant was assessed to purchase tax and the order of assessment was received by it on 23rd ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer." [Emphasis supplied] 11. The next judgment is the judgment of a Bench of three learned Judges of the Supreme Court in National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383. In that case, the assessee had deposited its funds not immediately required by it on short term deposits with banks. The interest received on such deposits was offered by the assessee itself for tax and the assessment was completed on that basis. Even before the Commissioner of Income-tax (Appeals), the inclusion of this amount was neither challenged by the assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item We do not see any reason to restrict the power of the Tribunal under Section 254 only .to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals). Both the assessee as well as the Department has a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier." 14. In Goetze (India) Limited v. Commissioner of Income Tax (2006) 284 ITR 323 (SC) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../s 32(1)(ii) may be allowed on the amount of Rs. 1,85,44,612/- allocated by the appellant in its accounts towards "goodwill" as part of consideration to M/s ECE Industries Ltd. together with the latter"s - "business and commercial" rights under the agreement dated October 16, 2002" 19. During the relevant year as stated above, the Assessee acquired the running business, in terms of Undertaking Sale Agreement dated 16th October 2002 (hereinafter referred to as the "Agreement"). The Assessee had acquired the "Elevator Division" business of ECE Industries Limited which comprised of marketing, selling, erection, installation, commissioning, service, repair, maintenance and modernization including major repairs of products. 20. The business as acquired by the Assessee was defined under Article 1.1.3 of the Agreement is as under: "Business" means the business of marketing, selling, erection, installation, commissioning, service, repair, maintenance and modernization including major repairs of Products excluding excluded contracts" 21. Further, the details of business, assets referred to as "Undertaking" were defined under Article 2.1 of the Agreement is as under: "(i) Fixed Assets; ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the Assessee on the basis of its Group"s policy at Rs. 18,34,74,000/- (refer Page No. 162 Paper Book, Assessment Year 2003-04). 27. Further, the AR submits that, it was unable to file the Proforma financial statements as on 31.03.2002 which is the exhibit 1.1.31 before the AO/CIT (A) since, the same were used by two unrelated parties to the contract in order to arrive at a fair purchase consideration acceptable to both. The value of various assets as mentioned in the said statement cannot be reconciled with the amount allocated in the agreement itself was primarily due to the difference in valuation computed on 31.03.2002 and the agreement was after 7 months i.e. 16.10.2002, and other factors which are not apparent from reading the Agreement. 28. On the other hand the Ld. DR contends that, most significant year is Assessment Year 2003-04, which is relevant to Financial Year 2002-03, the year in which the Agreement was entered by the Assessee with ECE Industries Ltd, as a result of which tangible and intangible assets are said to have changed hands. 29. According to the Ld. DR as per the balance-sheet of the Assessee on 31.03.2003, the maintenance portfolio stood at Rs. 18,3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed consideration by the Ld. CIT(A) was whether the total payment of Rs. 18,34,74,000/- claimed to be for acquiring "maintenance portfolio" will fall under the head intangible assets and depreciation could be allowed on it not as per the Act. (b) The AO, in his order, has held that the assessee did not derive any income in respect of contracts acquired from ECE. However, from the details filed, it is found that the assessee has earned an amount of Rs. 5.10 crores in relation to the business acquired by the assessee from ECE Industries Ltd. In fact, revenue of Rs. 4.26 crores from such contracts has been booked on time basis as per the company"s accounting policy. Further, the AO has emphasized that the assessee has amortized maintenance portfolio for a period of 10 years in its books of accounts. Therefore, he has not allowed the claim of depreciation made by the assessee. However, as per Section 32 of the IT Act, depreciation is to be allowed in respect of such assets including intangible assets, if any, at the rate prescribed under the Income Tax Act if the claim is found to be correct. In view of the above findings and facts and circumstances of the case, though the appellant i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eciable assets. It not a complete lock, stock and barrel sale. The transaction is subject to many conditions attached to it as per the agreement. At best, the consideration can be equated as an amount/ consideration paid to acquire income yielding apparatus which in turn is noting but capital in nature. By any stretch of imagination or logic, it cannot be inferred that it resulted in depreciable intangible assets. On the contrary, advantage has accrued to the purchaser (appellant company) on such acquisition. In fact, the said advantage would further enhance with passage of time with its standing and reputation in the market. The vendor continues to carry on its business of manufacturing with the same "Brand Name" and only temporarily resists/ stops the service and repair work with the majority of its customers with the exception to govt./ semi-govt and other related agencies etc. It is not the case that the vendor is completely and absolutely out of circulation in the said business in the existing market." 33. As a result, Ld CIT(A) was pleased to dismiss the Appeal of the Assessee and disallowed the claim for depreciation to the tune of Rs. 2,29,34,250/- as it was held to be n....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 intangible assets, which were neither feasible nor possible to exhaustively enumerate. In the circumstances, the nature of "business or commercial rights" cannot be restricted to only the aforesaid six categories of assets, viz., knowhow, patents, trademarks, copyrights, licenses or franchises. The nature of "business or commercial rights" can be of the same genus in which all of the aforesaid six assets fall. All the above fall in the genus of intangible assets that form part of the tool of trade of an assessee facilitating smooth carrying on of business. In the circumstances, it is observed that in case of the assessee, certain annual maintenance contracts (AMC"s), which constituted the whole and sole of the "maintenance division" business of the transferor and which was hitherto being carried out by the transferor, without any interruption were transferred under the said undertaking and sale agreement. The aforesaid intangible assets are, therefore, comparable to a licens....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rce in the argument of the ld AR that since said AMC"s are commercial rights and the same should rightly be categorized as "business or commercial rights" for the purposes of Section 32(1)(ii) of the Act. Thus, by applying the principle of ejusdem generis we hold that in the facts and circumstances of this case, such AMC"s should get covered within the expression "business or commercial rights of similar nature" specified under Section 32(1)(ii) of the Act and accordingly eligible for depreciation. In the result, this issue is answered in the affirmative and decided in favour of the assessee. 41. Now, turning our attention to the second issue under consideration i.e. depreciation of Rs. 1,85,44,612/- as allocated by the appellant in its accounts towards "goodwill" as part of consideration to M/s ECE Industries Ltd u/s 32(1)(ii) of the Act. In this regard, it is important to understand as to what constitutes "goodwill". 42. It is being held by the Supreme Court in the case of Srinivasa Shetty 128 ITR 294, "because of its intangible nature it (goodwill) remains insubstantial in form and nebulous in character. Its value may fluctuate from one moment to another depending on the chang....