TaxTMI 
TaxTMI 
2009 (9) TMI 957
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....ciating that the firm M/s Modular Systems, which was taken over by the assessee company on 9th April, 2000, did not have any asset of this nature under any of the blocks of assets appearing in its balance sheet as on 31st March, 2000." 3. Facts in brief as narrated in the corresponding assessment order passed under s. 143(3) of IT Act, dt. 28th Nov., 2003 were that the assessee company is in the business of software development and also licensing of softwares. It was observed by the AO that the appellant has claimed depreciation @ 25 per cent on an amount of Rs. 4,27,00,000 pertaining to the value of intellectual property rights (in short IPR). Facts in this regard were that the assessee had taken over the business of a firm namely, M/s Modular Systems. It was noticed by the AO on perusal of the balance sheet of the said firm drawn as on 31st March, 2000 that the value of several tangible assets was to the tune of Rs. 18,39,034. However, for the purpose of transfer of assets from erstwhile firm to the assessee company there was an addition of value of IPR by an amount of Rs. 4,27,00,000. Therefore, the observation of the AO was that the assets were revalued just before taking over....
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.... said revaluation was with a purpose to inflate the value of the assets of the firm and consequently the successor company has claimed higher depreciation. The AO was of the view that the impugned asset i.e., IPR had no value associated with it because of the reason that the said firm had never incurred any cost to acquire such rights. On the other hand the submission of the assessee was that it had purchased the tangible as well as intangible assets of the firm including IPR, therefore, entitled for the claim of depreciation. There was a reference of s. 32 in support of the claim that as per the statute depreciation is allowable on intangible assets. Since the company had succeeded the business of the firm by taking over all the assets and liabilities, therefore, the assessee company had become the owner of all the assets, whether tangible or intangible. On the basis of the ownership of the copyrights in the softwares and fonts the assessee had conducted the business of licensing of software and fonts to the end-users and thus derived economic benefits. Further, there was a reference of s. 43(6) of IT Act to define the terms "WDV". It was also contended that Expln. 1 to s. 43(6) w....
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....aim of depreciation on IPRs and amount thereof. 1.4 The appellant company vide its various letters filed during the course of assessment with the learned AO made detailed submissions which are summarized hereinbelow : (a) M/s Modular Systems (hereinafter referred to as the 'firm') was formed in 1982 by a group software professionals (engineers) having a strong R&D background. The firm was the first to develop in-house facility to digitize and rasterize Indian language typefaces. (b) The firm developed 1,700 Indian language fonts like decorative fonts, text fonts, symbol fonts, which are copyrighted. (c) The firm had largest font library and was leading Indian language font developer. The firm marketed the fonts developed by it in the form of software package named 'Shree-lipi' and other software packages. (d) The firm had successfully developed softwares on project basis for municipal corporation Election Commission of India, companies, firms etc. The firm had developed management softwares. (e) The Manufacturers Association of Information Technology in its report stated that the firm's market share in the linguistic softwares was second largest i.e., 23 p....
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.... The appellant thereafter admitted the position and submitted a fresh valuation of the assets including that of the goodwill as per letter dt. 22nd March, 2004 and a copy of which is given as an Annex. 2 to this appellate order. The valuation of goodwill at Rs. 79,50,000 has also been accepted by the AO in the remand report dt. 24th March, 2004 sent by the Addl. CIT, Range 1, Pune, vide letter dt. 29th March, 2004. 5. In the background of the above discussion, I have carefully examined the facts of the case along with the legal position in this regard. The valuation of assets, as has been done during the appellate proceedings reduces the value of IPRs by an amount of Rs. 79,50,000 and is thus reduced to Rs. 3,45,85,000. The depreciation is accordingly to be decided at a lower figure than has been claimed by the appellant. Coming to the claim of the appellant that these assets namely IPRs have later been valued at a higher figure by a third person namely M/s TVS Electronics Ltd. has also been considered and has a relevance as the valuation has been done by a well known concern, Ernest Young (P) Ltd. The legal position reflected in R.B. Bansilal Abirchand Spinning & Weaving Mills Lt....
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....porate company such as limited liability, easy finance and better recognition. Keeping in view those benefits there was a decision to restructure the firm by converting into a corporate i.e., company hence the value of the assets of the firm including IPR, was done through two valuation reports obtained viz., M/s D.G. Kurundwadkar and another firm M/s N.M. Raiji & Co. Once the valuation report was obtained, thereafter it was decided to enter into an agreement with the assessee company. The amount of consideration settled between the parties was duly paid by the firm in the form of allotment of equity shares to the partners of the firm. One of the important features of the taking over of the business was that apart from the directors an independent concern namely M/s TVS Electronics had also joined hands in taking over the business of the firm. That concern has independently got valued the assets of the firm including intangible assets. In the backdrop of above facts onething is apparent that there is no material to demonstrate that the transfer of business was out of any collusion between the parties. In such circumstances it is advisable that the Revenue authorities must be preclu....
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....t of place to mention that even the statute has prescribed the definition of "actual cost" as per s. 43(1) which means, the actual cost of the assessee if any, as has been met directly. Nevertheless Expln. 3 to the section prescribes an authority to the AO to have satisfaction about the cost of the asset and in case he is satisfied that the main purpose of the transfer of such an asset is to reduce the liability of income-tax by claiming higher depreciation on the enhanced cost then the actual cost to the assessee shall be such an amount as the AO determined having regard to all the circumstances of the case but with a rider that a previous approval of the Jt. CIT is essentially required. In the present case the argument of the learned Authorised Representative is that no such satisfaction has ever been recorded by the AO and even it is not in the knowledge of the assessee that whether such an approval as prescribed was obtained by the AO. Apart from this the submission before us is that this is not the case of an acquisition of a single asset but the assessee company has acquired all the assets and liabilities on lock, stock and barrel condition of an on going concern i.e., the fi....
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....we have examined few case law which were relied upon by learned CIT(A) and one of them is R.B. Bansilal Abirchand Spinning & Weaving Mills Ltd. vs. CIT (supra) for the proposition that there must be a finding of the AO about unacceptability of the method adopted by the assessee and to demonstrate the irregularity in the said method. In the absence of such a finding the method as adopted by the assessee could not be brushed aside. There is a direct decision of respected Co-ordinate Bench, Cochin reported as Season Rubbers Ltd. vs. Dy. CIT (supra) wherein it was held that in a case when a limited company has taken over the assets of a partnership firm at revalued figures as recorded in the balance sheet then a company is entitled for claim of depreciation on the revalued or enhanced cost of assets. Likewise in the case of Bombay Household & Industrial Plastic Mfg. Co. (P) Ltd. vs. ITO (supra) the assessee company took over under an agreement certain assets of its sister concern and for that purpose the takeover took place in accordance with the report of a valuer. In that case as well the price paid for the transfer was far more than the book value in the transferor's accounts. T....
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.... past performance of going concern; on the other hand, the IPR depends upon the probability of the future performance. Therefore both have independent and divergent directions of valuation. Since the learned CIT(A) has taken the due cognizance of the total consideration which had passed from one hand to another therefore he had no option but to reduce the amount of the goodwill which was so valued by the assessee himself on the basis of the relevant information as placed on record before learned CIT(A). We hereby uphold the reasoning of learned CIT(A) which results into dismissal of these grounds. 14. The next ground is ground No. (ii) reproduced below : "1.2 He erred in not appreciating that the aforesaid Rs. 4,27,00,000 constituted in itself the valuation of the IPR comprising of trade marks and copyrights acquired from the firm as a result of succession of the firm by the appellant company in the business carried on by the firm and thus was the 'actual cost' incurred by the appellant company. Further he erred in not appreciating that no consideration had been paid/incurred in respect of goodwill per se by the appellant company." 14.1 We find no force in this ground be....