TaxTMI 
TaxTMI 
2016 (11) TMI 367
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....at the appellant obtained a "benefit" in respect of the said pre-payment. 3. The learned Commissioner of Income-tax (Appeals) erred in applying section 28(iv) to tax the said amount. 4 Having regard to the facts and circumstances of the case, the Appellant submits that the addition of Rs. 41,52,959/- be deleted. 5. Both the lower authorities erred in holding that the Appellant was not entitled to depreciation under section 32 in respect of the following intangible assets: Assets Value (Rs.) Trade Mark 2,00,00,000 Technical Know how 3,50,00,000 MarketingNetwork 3,75,00,000 Non-Compete fees 4,02,50,000 Total 13,27,50,000 6. The learned Commissioner of Income-tax (Appeals) erred in giving several findings which are either irrelevant or incorrect for disallowing depreciation under section 32. 7. The learned Commissioner of Income-tax (Appeals) erred in holding that depreciation is allowable only on those intangible assets which are protected rights. 8. The learned Commissioner of Income-tax (Appeals) erred in holding that depreciation is available under section 32 only in respect of a "registered trade mark' or "patent....
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....f Incentives. Such gain on pre-mature repayment in terms of the scheme of State Government of Maharashtra came to Rs. 41,52,959/- which the Assessing Officer treated as a revenue receipt chargeable to tax u/s 41(1) of the Act. The said action of Assessing Officer has since been affirmed by the CIT(A) also, against which assessee is in further appeal before us. 5. On this issue, it was a common point between the parties that in the past years, the Tribunal has adjudicated the said issue in favour of the assessee. It was pointed out that in Assessment Years 2005-06 and 2006-07, the orders of Tribunal have also been affirmed by the Hon'ble Bombay High Court. In this connection, a copy of the order of Tribunal for Assessment Years 2007-08 and 2008-09 vide ITA Nos.528/Mum/2012 and 5800/Mum/2013 dated 27.7.2016 has been placed on record wherein the aforesaid fact-position has been noticed. 6. The aforesaid factual matrix has not been controverted by the ld. DR appearing before us. 7. In our considered opinion, the controversy in Grounds of appeal no. 1 to 4 is liable to be decided in terms of the judgment of Hon'ble Bombay High Court in the case of assessee itself report....
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....s 28(iv) is something which actually flows to the assessee in monetary terms. In support of his view, he relied upon circular of the Board No. 20D, dated 07.07.1964, relevant part of the circular is reproduced hereunder for the sake of ready reference: "Assessment of the value of any benefit or perquisite arising from business or exercise of a profession, as income from business or profession. A new clause (iv) has been inserted in section 28, with effect from 1-4-1964, by section 7 of the Finance Act, 1964, under which the value of any benefit or perquisite (whether convertible in money or not) arising from business or the exercise of a profession will be chargeable to tax under the head "Profits and gains of business or profession". A corresponding amendment has been made to section 2(24), including the value of such benefit or perquisite in the definition of the term "income" vide new sub-clause (va) inserted in section 2(24) by section 4(c)(i) of the Finance Act, 1964. The effect of the above-mentioned amendment is that in respect of an assessment for the assessment year 1964-65 and subsequent years, the value of any benefit or amenity, in cash or kind, arisin....
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.... assets acquired by the assessee as part of deal of acquisition of Grinding Wheel Business of OAL in terms of the Business Transfer Agreement dated 18.04.2006 entered by the assessee with the said company. It is noted by us that from the perusal of the business agreement enclosed at paper book no. 27 to 87 that assessee acquired Grinding Wheel Business of OAL along with its tangible and intangible assets including Goodwill, intellectual property rights e.g. patents, copyrights, past and present R & D works, brands, trademark, service marks, registered design etc. and all other rights available to prevent the misuse or disclosure of trade secrets. The assessee also submitted valuation report from M/s. Anmol Sekhri and Associates, the Registered Valuers (enclosed at page no. 10 to 192 of the paper book) for ascertaining valuation of the business giving values of each and every fixed assets and other intangible assets acquired by the assessee under the aforesaid deal. It is noted by us that the lower authorities have granted the benefit of depreciation on the amount of fixed assets acquired i.e. plant and machinery etc. Thus, genuineness of transaction has not been doubted, but what h....
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....n the fair market value of the net tangible asset, that is, assets less liabilities. The difference in the purchase consideration and the net value of assets and liabilities is attributable to the commercial benefit that is acquired by the purchaser. Such goodwill is also commonly understood as the value of the whole undertaking less the sum total of its parts. The 'Financial Reporting Standard 10' issued by Accounting Standard Board which is applicable in United Kingdom and by the Institute of Chartered Accountants of Ireland in respect of its application in the Republic of Ireland, explains that the accounting requirements for goodwill reflect the view that goodwill arising on an acquisition is neither an asset like other assets nor an immediate loss in value. Rather, it forms the bridge between the cost of an investment shown as an asset in the acquirer's own financial statements and the values attributed to the acquired assets and liabilities in the consolidated financial statements. In view of Accounting Standard 10 as issued by the [CAI the assessee's contention was right that the consideration paid by the assessee in excess of value of tangible asset....
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....cess consideration paid by it over and above the value of net asset acquired, was to be considered as Goodwill u/s 32(1)(ii) which was eligible for depreciation. 5.9. In addition to the above, on facts also, it is noted by us that the assessee brought on record ample evidences in support of its claim to justify the acquisition of various other intangible assets and the justification of their valuation as well as admissibility of depreciation on these assets. It is noted that the Business Transfer Agreement was quite exhaustive having elaborate schedules and annexures containing item wise description of each and every tangible and intangible assets acquired by the assessee. The assessee acquired entire plant and machinery, various trademarks, commercial list of customers and dealers, entire data and information in relation to sales and distribution network, of technical know-how, Goodwill of Grinding Wheel Business, rights of non-competition etc were described in the said agreement. It is further noted that proper break-up and justification for the consideration has been narrated in the said agreement. The said agreement also contains lists of employees of OAL to be taken-over by....
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....e of Rs. 4,55,229/-. 13. In this context, the relevant facts are that during the year under consideration assessee earned dividend income of Rs. 2,30,40,005/-, which was claimed as exempt. In the return of income assessee made a suo motu disallowance of Rs. 16,57,492/- u/s 14A of the Act. The Assessing Officer, however, computed the total disallowance at Rs. 21,12,722/- and accordingly made an additional disallowance of Rs. 4,55,230/-, which is the subject matter of appeal before us. It has been explained that the disallowance of Rs. 4,55,230/- in appeal is out of interest expenditure and has been computed by applying Rule 8D(2)(ii) of the Income Tax Rules, 1962 (in short 'the Rules'). In this context, the limited plea of the assessee is that the Share capital plus Reserves & Surplus available with the assessee is more than enough to cover the investments which have yielded exempt income and, therefore, in terms of the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., 313 ITR 340 (Bom) a presumption arises that the investments have been made out of such interest-free funds. It is pointed out that the proposition laid d....
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....ree and interest bearing funds, and if the Share capital plus Reserves & Surplus (which are non-interest bearing funds) are sufficient to cover the investments, then a presumption would arise that such investments have been made out of non-interest bearing funds. Of course, the decision of the Hon'ble High Court has been rendered in the context of Sec. 36(1)(iii) of the Act, as contended by the Revenue before us. So however, that is not a ground to defeat its applicability in the context of disallowance u/s 14A of the Act because the proposition approved in Reliance Utilities and Power Ltd. (supra) has been applied by the Hon'ble Bombay High Court in the case of HDFC bank Limited (supra) while dealing with the provisions of Sec. 14A of the Act. Therefore, in our view, the plea of Revenue that the decision of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (supra) cannot be applied in the context of Sec. 14A of the Act is not merited. Factually speaking, the learned representative for the assessee had referred to the Balance-sheet to point out that the Share capital plus Reserves and Surplus amounts to Rs. 318.21 crores as against investment of....
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....d to varying cost of interest rates at which the two entities could raise Bonds in the Indian market. In other words, the TPO noted the difference between the credit rating of assessee (and the corresponding interest rate payable to raise Bonds in Indian market) and the credit rating of the AE (and the corresponding interest rate payable for raising Bonds in Indian market) and such difference, according to him, reflected the benefit in the form of Corporate Guarantee given by the assessee. The Assessing Officer accordingly added a sum of Rs. 2,12,397/- to the returned income for the purpose of determining the arm's length rate of the income by way of Guarantee commission. Such an action of the Assessing Officer has since been affirmed by the CIT(A) also. 19. Before us, the only point of dispute relates to the arm's length rate of 3.35% determined by the income-tax authorities for determining the Transfer Pricing adjustment. The learned representative for the assessee pointed out that the TPO has not adopted any of the recognized methods for determining the arm's length rate of the Guarantee commission and that even the determination of the credit rating of the assessee-company a....
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....mpany was to be compensated adequately. The ld. DR argued that TPO had pointed out that the credit rating of AE was lower than that of the assessee and, therefore, the AE could raise funds from the market at higher interest rates. The ld. DR defended the selection of interest rates prevailing in the domestic bond market by pointing out that such data was more reliable, though it related to the Indian context. 22. We have carefully considered the rival submissions. In the present case, AE of the assessee, M/s. Saint-Gobain Ceramic Materials Bhutan Pvt. Ltd., which is based in Bhutan, raised a term loan from Bank of Bhutan Ltd., Bhutan in the month of January, 2009 and the amount outstanding as on 31st March was Rs. 6,29,32,450/-. The assessee-company provided Corporate Guarantee to the Bank of Bhutan in connection with the said borrowing on behalf of its AE. The provision of such Corporate Guarantee is quite well understood and it means that if the AE was to default in the repayment of loan availed from the Bank, assessee would step in and make good the dues owned to the Bank. The assessee-company has charged Corporate Guarantee fee @ 1% from its AE and such transaction has been ....
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....nk by the AE of assessee outside India. Therefore, in our considered opinion, the exercise carried out by the TPO to arrive at the arm's length rate of 3.35% suffers from an inherent misconception as the benchmarking has been done between two incomparable situations. Therefore, we are unable to uphold the said stand of the income-tax authorities. 24. Insofar as the adequacy of 1% rate charged by the assessee is concerned, we find enough reasonableness in the same. In this context, the learned representative for the assessee referred to various decisions of the Tribunal, viz., Hindalco Industries Ltd. v. ACIT (62 taxmann.com 181) (Mum Trib.), Thomas Cook (India) Ltd. v. ACIT (69 taxmann.com 443) (Mum Trib.) and Godrej Consumer Products Ltd. v ACIT (69 taxmann.com 436) (Mum Trib.), wherein the arm's length rate of 0.5% has been approved in the matter of benchmarking Guarantee commission fee chargeable from Associated Enterprises. On this aspect, we may observe that each case would have to be decided in the light of the prevailing facts and circumstances. In the present case, a point which has been consistently made by assessee is to the effect that there is no concept of credit ra....