TaxTMI 
TaxTMI 
2009 (8) TMI 1157
X X X X Extracts X X X X
X X X X Extracts X X X X
....l, the facts are as under : During the year relevant to asst. yr. 2001-02 on 7th Sept., 2001 three group companies of the assessee have merged into the assessee company under the scheme of amalgamation. The company created an asset in the balance sheet by way of goodwill of Rs. 3,05,91,000 and claimed depreciation @ 25 per cent under s. 32(1)(ii). The AO was of the view that the Act does not explicitly mention that goodwill is eligible for depreciation and s. 32(1)(ii) is exclusively for know-how, patents, copyrights, trade marks, licences, franchise or any other business or commercial rights of similar nature. The assessee's contention is that the amount paid is towards licence or any other business or commercial rights of similar nature. The AO went on to analyse the claim of the assessee and held that the goodwill in this case is self-generated and not purchased and the assessee's contentions regarding goodwill and Accounting Standards are not applicable to the facts of the case in claiming the depreciation on goodwill. The CIT(A) has further analysed the issue and upheld the order of the AO and hence the assessee is aggrieved. 4. Drawing our attention to the paper bo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estments 4,55,111.00 39,75,033.68 Goodwill 35,91,000.00 5. It was submitted that the AO has disallowed the depreciation on three distinctions between rights specified in the section and goodwill, which are extracted in p. 11 of the order as under : "(a) In the case of goodwill, it is not protected under any statute and is neither controlable nor identifiable nor measurable and therefore it cannot be equated with other specific rights mentioned in cl. (ii). (b) Goodwill is distinguished from other intangible assets from another angle also. The other intangible assets are separable and identifiable and they can be sold, exchanged or distributed without affecting the future economic benefits arising from other assets used in the same enterprise. But, goodwill cannot be separated from the enterprise without affecting the future economic benefits flowing from other assets of the same enterprise. (c) Unlike other intangible assets, goodwill is not a business or commercial right as it cannot be separated independent of the business. No one can carry on business with goodwill as a trading or business asset. Thus, unlike copyrights, patents....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l in Guruji Entertainment Network Ltd. (supra) the issue can be segregated into goodwill simpliciter on the basis of two years profit earning capacity of the two companies, i.e., two years purchase value of Rs. 20.28 lakhs in the case of BIPL and two years purchase value of Rs. 4.51 lakhs in the case of SGCPL to submit that the goodwill simpliciter can be fixed at about Rs. 50 lakhs and the balance can be considered for other commercial rights and accordingly the depreciation may be allowed. These commercial rights refer to printing rights, marketing rights, etc. which are allowable for deduction as intangible assets. With reference to the decision of the Tribunal, Ahmedabad Bench in the case of Bharatbhai J. Vyas v . ITO (2006) 101 TTJ (Ahd) 1012 : (2005) 97 ITD 248 (Ahd), referred to in the SMC Bench in the case of (2008) 118 TTJ (Mumbai) 344 : (2008) 13 DTR (Mumbai)(Trib) 150 : (2008) 116 ITD 348 (Mumbai) (supra), the learned counsel submitted that the issue decided therein was on goodwill simpliciter. It was submitted that for the value of goodwill simpliciter, amount paid by the assessee can be re-estimated as proposed and the depreciation can be allowed on the value of balanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e goodwill is not acquired. He further analysed the meaning of goodwill and the Accounting Standards elaborately in his order. The CIT(A) also has upheld the contentions by observing as under : "5.1 The AO is justified in holding that the expression 'other business or commercial rights' does not include depreciation. The goodwill, whether self-generated or obtained or created on account of amalgamation, is not a right of any kind. It is an asset. There is a difference between right in an asset or the ownership of the asset. The AO is also justified in holding that the business or commercial rights on which depreciation is admissible should be similar in their nature with the rights attributable to know-how, patents, copyrights, trade marks, licenses, franchises. It needs to be appreciated that the intangible assets mentioned in cl. (ii) are such, the ownerships of which is not vested with the assessee. Rather the assessee has purchased certain rights to use such assets which otherwise are owned by the parent of the intangible asset. 5.2 The general words 'any other business or commercial rights of similar nature' following the six specific categories of assets s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gamation after the fair value arrived at for merger of the companies, the facts of the case do fall within the propositions laid by the Hon'ble Tribunal in the case of Bharatbhai J. Vyas v. ITO (supra). 12. The facts in the above-referred case are that the assessee was a partner in the firm along with his father and one 'L'. 'L' retired from the firm and certain amount was paid to him as goodwill. In view of the provisions of s. 32 relevant for asst. yr. 1999-2000 the assessee claimed depreciation on the amount of goodwill. The AO rejected the claim on the ground that in the intangible assets specified in the section goodwill is not included specifically and that goodwill could not be treated as any' other business or commercial right of similar nature. The Hon'ble Tribunal held as under : "Intangible assets, other than specified one, shall be of a similar nature, i.e., the prescribed assets. The legislature has inserted a fiction, by which specified intangible assets are held to depreciate and allowance is given therefore. Know-how, patents, copyrights, trade marks, etc. are sometimes assigned different names and, therefore, by using the words 's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nature following specific and particular words should be construed as limited to things which are of the same nature as those specified. The general words take the colour from the specific words. The specific words in the above section reveal the similarity in the sense that all the intangible assets specified are tools of the trade which facilitate the assessee carrying on the business. Therefore, in my opinion, the expression 'any other business or commercial rights of similar nature' would include such rights which can be used as a tool to carry on the business. If this test is applied, then the rights acquired by the assessee under the agreement would fall within the expression mentioned above, since catering business at HLL canteen could be carried on only with the help of such rights under the contract and consequently, the assessee would be entitled to depreciation." 14. Since the facts are different and the amount paid was considered to be in the nature of business rights for conducting the business, the Tribunal SMC Bench, Mumbai has allowed the depreciation considering the amount paid as a right under the contract considered as intangible asset of similar nature ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the proprietorship firm owned a software library of approximately 400 hours. This software consists of 657 episodes of 3 different serials. Estimated realisable value per episode in repeat telecast of the serial was worked out at between Rs. 50,000 and Rs. 60,000. The number of episodes multiplied by the estimated realisable value constituted the basis of calculation of goodwill of the company. The valuation of the goodwill by this method came to Rs. 3.90 crores. However, the AO did not agree with this system of valuation of goodwill. Instead, the AO adopted a formula whereby goodwill was valued at two years' purchases by the business. Thus, the value of goodwill = Rs. 79,740 x 2 = Rs. 1,59,480. This computation was based on valuation of goodwill as given in the widely used book on Advanced Accounts by M.C. Shukla, T.S. Grewal and S.C. Gupta. 16. The Hon'ble Tribunal considered the facts of the case and held as under : "13. In view of the above discussion, we can conclude that total value of tangible and intangible assets transferred to the assessee company, as per the valuation arrived at by Anand Parikh & Co., amounts to Rs. 4.11 crores. While valuing the intangible....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessee before the authorities were with reference to whether the goodwill is a capital asset or not. The provisions of s. 55(1) do indicate that goodwill is a capital asset but that also prescribes that in relation to a capital asset being a goodwill of the business (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under sub-cls. (i) to (iv) of sub-s. (1) of s. 49] shall be taken to be nil for the purpose of cost of improvement while computing capital gains. The provisions of s. 55(2) do indicate that goodwill cannot be allowed to depreciate as the cost for the purpose of acquisition is taken in the purchase price and in any other case to be taken nil. Provisions of s. 55(1)(b)(i ) in relation to goodwill for the purpose of cost of improvement shall be taken to be nil. These indicate that goodwill being a capital asset cannot be considered for the purpose of depreciation. Moreover in the provisions of s. 32(1)(ii) while mentioning the various intangible assets specifically and also mentioning business or commercial rights of similar nature,....