TaxTMI 
TaxTMI 
TaxTMI 
2015 (3) TMI 308
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....bjected to wear and tear due to diminish in value with use and efflux of time. b. These assets are not measurable assets. c. These assets are not clearly, identifiable assets having their own independent existence. d. These assets are not defined under section 32(1)(ii) of the Act. e. These assets are part and parcel of and ingrained in the technical man power, machinery and establishment purchased by assessee from Bosch. 3. The appellant reserves the right to amend, alter or add to the grounds of appeal. 3. The brief facts of the case are that, the assessee was engaged in the business of trading in two wheeler brake systems and components. For the year under consideration, the assessee had furnished the return of income declaring total income at Nil. The first issue raised by the Assessing Officer during the course of assessment proceedings was in relation to the transfer pricing adjustments in respect of payment of royalty pursuant to the order of Transfer Pricing Officer. The Assessing Officer proposed an adjustment of Rs. 1,75,38,458/- which was reversed by the DRP and the expenditure incurred on royalty was directed to be allowed. Pursuant thereto, the Assessing Officer i....
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....s like registration charges, duties, etc. were also included and for financial year 2005-06, the assessee had allocated the cost of Rs. 10.36 crores to intangible assets. In assessment year 2006-07, depreciation @ 12.15% equal to Rs. 1,29,49,873/- was claimed and the opening WDV of the intangible assets brought forward was Rs. 9,06,49,113/-. The Assessing Officer further observed that the assessee company had acquired the business of M/s. BCSIL for a total consideration of Rs. 28.70 crores and the fixed assets and the inventory had been valued and acquired at cost from M/s. BCSIL. The remaining amount paid by the assessee as the purchase consideration to M/s. BCSIL was allocated to the assets named as intangible assets. The said company i.e. M/s. BCSIL was assessed with the same Assessing Officer and the fixed assets schedule of M/s. BCSIL as on 31.03.2007 was attached as an Annexure-I. The Assessing Officer on the perusal of the same, noted that M/s. BCSIL was not in possession of any recognised intangible assets that it could have transferred to the assessee, in view of the sale / purchase agreement. As per clause 1.1.1 of Article 1 of the agreement to assets sale and transfer, d....
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....lance to the cost of intangible assets and this was correct. The learned Authorized Representative for the assessee further referred to the valuation report of intangible assets placed at pages 125 to 147 of the Paper Book and pointed out that the intangible assets were separately defined and identified in the agreement. Consequently, the valuer was of the view that the valuation of these individual intangible assets in isolation may not be appropriate. The learned Authorized Representative for the assessee pointed out that the allegation of Assessing Officer was that the assets were not covered under section 32(1)(ii) of the Act, but were in the nature of goodwill of the business. 8. The first aspect pointed out by the learned Authorized Representative for the assessee was that all the individual items of intangible assets acquired by the assessee were entitled to the depreciation as the various Tribunals had considered each of the said items in different decisions and held the same to be eligible for depreciation. In respect of the second allegation of the Assessing Officer that the intangible assets acquired by the assessee at best could be called goodwill developed by M/s. BCS....
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....0. We have heard the rival contentions and perused the record. The issue arising in the present appeal is vis-à-vis claim of the assessee on account of depreciation on intangible assets. The assessee was engaged in the business of trading in two wheeler brake systems and components. During the year under consideration, the assessee entered into an agreement to assets sale and transfer dated 01.02.2006 with M/s. BCSIL for acquiring the business of manufacture and sale of complete braking system for two wheeler and components thereto (in short RBIC assets). The agreement dated 01.02.2006 is placed at pages 91 to 97 of the Paper Book. The perusal of the agreement reflects that the intention of the parties i.e. M/s. BCSIL desired to sell and transfer and the purchaser i.e. the assessee desired to purchase and acquire from the seller the RBIC assets in accordance with the terms and conditions of the agreement dated 01.02.2006. Under the definition clause, RBIC assets were defined as per clause 1.1.3 to mean the tangible assets and also the intangible assets. As per clause 1.1.2, the intangible assets included the right to manufacture, being an intangible assets owned by RBIC, per....
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....nical Manpower: Specific technical knowledge and experience of RBIC employees reemployed by the JVCo. in two wheeler brake manufacturing through specialization / specific training with respect to the Indian two wheeler braking systems. e) Technology: Drawings and designs with respect to the local adaptation for the Products currently manufactured for Indian application f) Patents: Internally developed technology for manufacturing of two wheeler brakes retrofits. The registration of patent for the same being in process. 12. The parties to the agreement had also got the valuation report prepared for the tangible assets and also for the intangible assets. The copy of the valuation report of tangible assets is placed at pages 98 to 124 of the Paper Book and the copy of the valuation report of intangible assets is placed at pages 125 to 147 of the Paper Book. The perusal of the said valuation report reflects the valuer to have conducted the exercise of identification of intangible assets. As per item V, clause 21, valuer commented that any intangible asset could have three stages i.e.(i) the asset which may or may not have any future economic benefits such as inventions, patents....
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....h assets by the assessee and its usage for the purpose of business or profession. As pointed by us in the paras hereinabove, the depreciation on tangible assets has been allowed by the Assessing Officer in the hands of the assessee. However, the depreciation on intangible assets has not been allowed to the assessee. In order to adjudicate the issue, we need to look at the nature of assets claimed to be intangible assets acquired by the assessee. For this, we make a reference to the Appendix - 2, which is attached to the agreement entered into between the parties dated 01.02.2006 and also the order of Assessing Officer which has referred to the submissions of the assessee on each of the items. 16. The first item to be considered is the Customer base. The perusal of Appendix -2, would reflect that it was not only the Customer base developed by the seller for two wheeler brake system, which was passed upon the assessee, but the same was along with transfer of orders in hand and long term contracts with the customers. The case of the Assessing Officer was that no separate costs had been allocated by the assessee to these assets and further, the same do not figure in the specified asse....
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....raking components. The said acquisition by the assessee is akin to the acquisition of Customer base and following the same parity of reasoning, we hold the assessee is entitled to claim depreciation under section 32(1)(ii) of the Act on the same. The Assessing Officer had treated the same to be in the nature of goodwill developed by the M/s. BCSIL which has been acquired by the assessee and following the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Limited (supra), the assessee is entitled to the claim of depreciation under section 32(1)(ii) of the Act. 20. The next item acquired by the assessee was the Process Knowhow which is related to plans, designs and drawings. The Assessing Officer was of the view that where the Know-how is related to plans, designs and drawings of the buildings or plant & machinery, then the same is to be capitalized under the relevant asset head and depreciation is to be allowed on the total cost of asset including the cost of Know-how capitalized. The Assessing Officer further held that where the consideration was for the supply of Know-how being recurring, under which payments as royalty, technical assistance fee, etc. we....
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....ld have had to commence business from scratch and go through the gestation period whereas by acquiring the aforesaid business rights along with the tangible assets, the assessee got an up and running business." (underline provided by us) 22. The Hon'ble Delhi High Court thus held that where, on the acquisition of business, the assessee acquires certain information which is invaluable and would result in carrying out the business in continuity, which was earlier being carried on by the transferor, then the said intangible assets were comparable to the licenses to carry out the existing business of the transferor, in the absence of which, the assessee would have to commence its business from scratch and go through gestation period. 23. Reliance was placed upon the ratio laid down by Hon'ble Supreme Court in P.K. Badiani Vs. CIT (supra), by the learned Departmental Representative for the Revenue is mis-placed as the issue before the Hon'ble Supreme Court in relation to the allowance of initial depreciation on development rebate, which was under the said old provisions of the Act, was distinct from the normal depreciation to be allowed on the assets. The said principle la....