TaxTMI 
TaxTMI 
2018 (1) TMI 12
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.... 3. The assessee in ITA No.1507/PUN/2012, relating to assessment year 2004-05 has raised the following grounds of appeal:- On the facts and in the circumstances of the case and in law, the learned CIT(A) has : Depreciation on various assets purchased for lumpsum consideration 1. Erred in disallowing depreciation amounting to Rs. 27,14,07,414 (which included enhancement of Rs. 23,83,55,826) claimed by the Appellant on the values of following tangible and intangible assets determined as per the valuation report obtained from an independent valuer by holding that depreciation is not allowable in respect of assets acquired under slump sale arrangement since the Appellant has acquired an undertaking and not individual assets per-se Sr. No. Nature of Assets Depreciation (Rs.) Total Depreciation(Rs.) 1 Plant and Machinery 1,76,03,091 2 Building 6,12,797 3 Furniture, Fixtures and Equipments 2,09,144 4 Computers 9,96,222 5 Trade-marks, Patents and knowhow 21,89,34,572 Total (A) 23,83,55,826 6 Non c....
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....een done in a fair and reasonable manner. Value of land at Taloja and Panki 8. Without prejudice to the above, erred in holding that the value of land at Panki division is Rs. 174.36 crores and the value of land at Taloja is Rs. 13 crores. Value of trade-marks, patents and know-how 9. Erred in ignoring the fact that the valuation of trade-marks, patents and know-how has been undertaken by an independent valuer in a fair and reasonable manner and that the value of trade-marks, patents and know-how would not be affected by the value of land. Depreciation on Non compete 10. Without prejudice to Ground No.1 above, erred in upholding the disallowance of depreciation amounting to Rs. 81,45,129 on non-compete payment on the contention that non-compete payment is not in the nature of "any other business or commercial rights of similar nature" as stated in the definition of intangible assets under Section 32(1) (ii) of the Act. Depreciation on Goodwill 11. Without prejudice to Ground 1 above, erred in upholding the disallowance of depreciation on goodwill amounting to Rs. 2,49,06,459 on the contention that goodwill is n....
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....ents, copyrights, license and franchise. The Assessing Officer rejected the same and held that goodwill was notional asset, which had no wear and tear. Accordingly, the Assessing Officer worked out the disallowance on the same i.e. depreciation on goodwill at Rs. 1,49,06,459/- and deprecation on non-compete at Rs. 81,45,129/-, totaling Rs. 2,30,51,588/-. Further, the Assessing Officer also noted variation in the opening WDV of both goodwill and non-compete. However, since the depreciation was neither allowed in earlier year nor in the year under consideration, variation of opening WDV was not considered by the Assessing Officer. 5. The CIT(A) after considering the reply of assessee noted that the assessee had purchased catalysts business from I.C.I. India Ltd. as going concern vide Business Transfer Agreement (hereinafter referred to as 'BTA') dated 02.12.2002, wherein the agreement did not specify any value for individual assets. Further, the agreement also does not mention about any payment made for acquisition of goodwill. The CIT(A) observed that when entire business was taken over by the assessee as going concern with all the assets and liabilities, there would remain no co....
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....n 251 of the Act. The CIT(A) was of the view that the claim of depreciation on know-how, trademark and patents was incorrectly made by the assessee and was allowed by the Assessing Officer since it was neither owned nor used by the assessee and cost of acquisition of intangible assets was also incorrectly taken for the purpose of depreciation. The CIT(A) issued show cause notice to the assessee in this regard, which is reproduced under para 5.1 at page 23 of the appellate order. The CIT(A) show caused that sum of Rs. 21,93,02,947/- for assessment year 2004-05 and Rs. 17,18,28,318/- for assessment year 2005-06 were claimed as depreciation on know-how, trademark and patents and the claim was allowed by the Assessing Officer. The CIT(A) observed that know-how in question was not owned by the assessee in as much as the same was not purchased as per BTA between the assessee and I.C.I. India Ltd. Further, there was no material available on record to show that the said know-how had been used for the purpose of assessee's business. The CIT(A) also found that the actual cost of intangible assets was not correctly shown in as much as no value to the land at Panki and Taloja had been allocate....
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....) at Rs. 27.49 crores i.e. Rs. 18.91 crores as working capital and Rs. 8.55 crores as value of fixed assets. The balance amount of Rs. 125.68 crores out of Rs. 153 crores paid to ICI India Ltd. was considered as value of intangible assets. The CIT(A) noted that the assessee then appointed another Valuer Ernst & Young Pvt. Ltd. and asked them to determine and allocate sum of Rs. 125.68 crores towards cost of various intangibles purchased. The tabulated details are reproduced at page 29 of the appellate order. The CIT(A) noted that the assessee accordingly, claimed depreciation in assessment year 2003-04 on the value of goodwill and non-compete fees @ 25% for both Syngas and PCEO Division, on the value as assigned by the Valuer to the said assets. The CIT(A) further noted that with regard to tangible assets of Syngas Division, which was valued at Rs. 17.08 crores, the amount was categorized as value of right to purchase Panki assets on nominal value and no depreciation was claimed. The claim of depreciation on non-compete fees and goodwill was rejected by the Assessing Officer and with regard to other assets including Rs. 94.34 crores being value assigned to trademark, patents and kn....
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....employees and Panki assets. Panki assets means all plant, machinery, equipment, computer and communications hardware, loose tools, fixtures, fittings, furniture and vehicles located at the Panki site; the leasehold and licensed properties comprising the Panki site, together with all buildings thereon; the Retailed permits; the Contracts in respect of the Panki site relating to the supply of utilities, the supply of consumables (including stores and spare parts) and the maintenance of the items referred to in paragraph (a) above; loans to employees; stocks of consumables, stores and spare parts. 6.4.3 It is, thus further clear that all assets of Indian business were not sold by the ICI to the appellant. As per terms of the BTA all assets of Syngas division i.e. Panki such as all plant and machinery; land, contracts, employees including manufacturing activity were specifically excluded from sale and hence were not transferred. Moreover, there is nothing mentioned in the BTA even to suggest that "knowhow" of Syngas division (PANKI) was segregated from the category of 'Excluded Assets' as defined in the BTA and then that "knowhow" was separately sold by the ICI to the appellan....
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....se assets will be purchased by the appellant only when option to purchase these assets is exercised by the appellant as provided in TCA. Since option to purchase Panki business as mentioned in TCA has not yet been exercised by the appellant, it can be said that Panki assets have not been yet been purchased by the appellant and thus the appellant cannot be regarded as the owner of any of the Panki assets including the know-how. 6.4.7 It is also seen that tangibles assets of Syngas division at Panki have been valued at Rs. 17,09,40,489 (Bldg. Rs. 2,69,23,388/-, plant and machinery 13,88,60,034/-, Furniture & Fixture 31,66,867/-, Data processing equipment 1,99,220/-). The amount of Rs. 17,09,40,489/- has been shown by the appellant as the value of right to purchase Panki assets. Since these assets have been not yet been purchased, the appellant itself has not claimed depreciation on this amount of Rs. 17,09,40,489/- for the reason that these assets are not owned by it. The material available on record also reveals that the appellant has submitted time and again that the depreciation on the tangibles assets worth Rs. 17.09 Cr. of Syngas division (Panki) has not been claimed be....
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....focus on precious metal, catalyst and fine chemicals. The CIT(A) noted that Johnson Matthey had operation in 34 countries and its turnover for the year ending 31.03.2002 was 4830 million pounds, wherein it was global leader in this line of business and controlled major market share of global catalyst business. The CIT(A) was of the view that the business was acquired by the group globally primarily with a view to increase its market share and not for the purpose of acquiring any know-how, patents, trademark, etc. from ICI India Ltd. and accordingly, no know-how, patents, trademark, etc. of ICI India Ltd. were used by the assessee for the purpose of its business, was the conclusion of the CIT(A). Reference was made to clauses 14 and 15 of the agreement titled as 'Technology License' and the CIT(A) noted that the products at Panki site were being manufactured by ICI India Ltd. for the assessee using technical information, know-how and brand name owned by the assessee and not by using the same purchased or acquired from ICI India Ltd. The explanation of assessee that know-how license to ICI India Ltd. as per the TCA was first purchased from ICI India Ltd. and then given back to ICI In....
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....4 .....I find that the catalyst business in Taloja was earlier carried on by another company Hindustan Level Ltd. and was called as nickel catalyst business of HLL. This business was sold by HLL to ICI in December 2001 for a consideration of Rs. 21 crores. The same business was later sold by ICI to appellant in December, 2002 and it was renamed as PCEO division by the appellant. The total value of tangible assets of PCEO division was estimated at about Rs. 8 crores in December, 02. Since same tangible assets were sold by the HLL to ICI in 2001, value of identifiable assets sold by HLL to ICI in 2001 could not have been more than Rs. 8 cr. Whereas the business was purchased by the ICI from HLL for Rs. 21 crores. It is thus clear that excess amount of Rs. 13 crores was paid by ICI to HLL over and above the value of tangible assets on account of value of lease rights of Taloja land. In lieu of consideration paid for land, name of ICI was included in the records of MIDC as sub-tenant of the land in Taloja as is evident from para (g) of Deed of Assignment dt. 09.01.2009. In the meanwhile, before lease rights of Taloja land could be assigned in favour of the ICI by the owner of the land ....
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.... duty value in the year 2009 could not be used for comparison, was rejected in the absence of any agreement or any other material being brought on record. 13. In respect of Panki land, it was submitted that as per terms of BTA, Panki land was specifically excluded from the sale and therefore, no value was required to be assigned to the said land out of purchase price of Rs. 153.18 crores. The CIT(A) found the contention of assessee as not tenable. He agreed that no doubt Panki land was excluded from sale as per the BTA, apparently, however, it was also a fact that purchase price of Rs. 153.18 crores paid by the assessee to ICI India Ltd., as per BTA includes the consideration for Panki assets including leasehold rights of Panki land. He was of the view that as per agreement, it was mentioned that right to purchase all Panki assets including Panki land by paying nominal price of Rs. 1 lakh only at a later date was not correct. He was of the view that purchase price of Rs. 153.18 crores paid by the assessee also included consideration for all the assets of Panki business including the rights in land, in lieu of which the assessee was given a right to purchase Panki assets by payin....
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....d by the assessee as the total value of intangible assets of business does not really represent the correct value of intangible assets. He thus, rejected the plea of assessee and held that the value allocated to intangible assets including know-how could not be accepted as actual cost for the purpose of allowing depreciation. He further held that allocation of 90% of total value to know-how was not justified. Referring to the Valuer's report in this regard, he noted that 90% of total value of intangibles was assigned by the Valuer to the know-how only on the suggestion of management, that know-how of the business acquired was very unique. He again referred to the assessee being global leader in the business of manufacture of various catalysts and reiterated that it was not purchased by the assessee from ICI India Ltd. because know-how of the business of ICI India Ltd. was not unique, but for the fact that ICI India Ltd. wanted to divest its global catalyst business and the assessee's principal company wanted to increase its market share. He further observed that there was nothing to show any know-how or patent acquired by the assessee was registered in the name of ICI India Ltd. an....
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.... the duty of Assessing Officer to ascertain truth and facts stated in the return and where wrong valuation has been accepted as actual cost of asset in earlier years, where the mistake is detected in later years, then the Assessing Officer is duty bound to rectify the mistakes. In this regard, reliance was placed on the ratio laid down by the Hon'ble Supreme Court in Saharanpur Electric Co. Ltd. Vs. CIT reported in 194 ITR 294 (SC). The CIT(A) further relied on various other decisions including the decision of Apex Court in the case of Radhasoami Satsang reported in 193 ITR 321 (SC) and held that the figure of actual cost accepted in earlier year was not sacrosanct and could be modified in subsequent year if it was found that the same had been wrongly accepted in earlier years. He further held that since from the detailed discussion it was clear that the claim of depreciation on know-how, etc. in the present case, was not legally tenable and had been wrongly allowed by the Assessing Officer while completing assessment. The CIT(A) held to be a fit case for enhancement of assessment for correctly determining the actual cost for the purpose of depreciation. In view thereof, he hel....
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....the view that assignment of cost to the individual assets after purchasing the undertaking was mere guess work and the value so assigned would remain estimate and could not be considered as actual cost. He referred to the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Artex Manufacturing Co. (1997) 227 ITR 260 (SC) and other decisions of Apex Court, wherein it was held that when the assessee could prove with documentary proof that slump price was determined on the basis of value of individual items of assets sold, then composite sale consideration could be bifurcated. He also made reference to the latest decision of Vodafone International Holdings B.V. Vs. Union of India & Anr. (2012) 66 DTR 265 (SC), wherein it was held that sale may take various forms, accordingly, tax consequence would vary. The CIT(A) thus, held that slump purchase price in the case of assessee paid for going concern consisting of various assets, liabilities, clientele, marketing network, market share, etc. could not be split for the purpose of claiming depreciation in the absence of any specific provisions in the Act and in view of various decisions. Reliance on AS-10 by the assessee was also held....
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....ground of appeal No.3 is against enhancement of income by the CIT(A) by disallowing depreciation on intangible assets and other assets amounting to Rs. 23.83 crores. The connected issues further are in grounds of appeal No.4 and 5, wherein the assessee is aggrieved by the disallowance of depreciation on assets which are entered in block of assets. The grounds of appeal thereafter i.e. grounds of appeal No.6 and 7 are on disallowance of depreciation on trademark, patents and know-how on the premise that the value of land at Panki division was Rs. 174.36 crores and the value of land at Taloji of Rs. 13 crores, for which ground of appeal No.8 has been separately raised. Further, vide ground of appeal No.9, the assessee is aggrieved by the orders of authorities below in ignoring the valuation of trademark, patents and know-how undertaken by the independent Valuer, which was adopted by the assessee. Vide ground of appeal No.10, without prejudice to ground of appeal No.1, the assessee has raised the issue of disallowance of depreciation amounting to Rs. 81,45,129/- on non-compete payment. Further, vide ground of appeal No.11, the assessee on without prejudice to ground of appeal No.1 has....
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....A) wanted to withdraw depreciation allowed by Assessing Officer on know-how, patents, trademark. In respect of second notice of enhancement issued on 15.02.2012, which is placed at page 173 of the Paper Book, the learned Authorized Representative for the assessee stated that the CIT(A) wanted to disallow depreciation on all assets and further, he disallowed depreciation on all the assets and also what was disallowed by the Assessing Officer. He pointed out that the issue which needs to be adjudicated in the present set of facts are as under:- i) Whether the CIT(A) had the jurisdiction to disallow depreciation on all assets, once they form part of block of assets and depreciation allowed in earlier years? ii) Whether on merits, the CIT(A) was justified to do enhancement, since the business purchased was going concern and the assessee not entitled to depreciation on individual assets? iii) Whether depreciation on technical know-how could be disallowed on the ground that the assessee has not acquired any know-how and the same has not been used by the assessee? iv) Whether if no know-how was acquired, then additional amount is whether goodwill and wh....
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....nd the assessee is not entitled to depreciation on such business. In order to controvert the findings of the CIT(A) in paras 8.1 and 8.2 at pages 67 to 70 of the appellate order, the learned Authorized Representative for the assessee referred to the following decisions:- a) Shreyans Industries Ltd. Vs. JCIT (2005) 277 ITR 443 (P&H) b) Drilbits International (P) Ltd. Vs. DCIT (2011) 142 TTJ 0086 (Pune-Trib) c) DE Nora India Ltd. Vs. CIT (2015) 57 taxmann.com 32 (Delhi) 23. The learned Authorized Representative for the assessee pointed out that the above said decisions have laid down the proposition that where lump sum payments have been received for all rights transferred including the assets transferred, then the consideration can be allocated amongst the said assets. Referring to the order of CIT(A), the learned Authorized Representative for the assessee pointed out that he had not allowed the claim of assessee in turn, relying on the decision in the case of sellers of business, where it was held not to allow the value over allocation of assets. He stressed that this may be true for the sellers' business, but in the case of purchasers, the accounting ....
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.... noted. Further, it was agreed that ICI India Ltd. would conduct business for assessee till actual transfer of the business. He referred to clause 18.5 at page 177 of the Paper Book and pointed out that know-how was part of transfer agreement. He further referred to the understanding for transfer of going concern and for retaining business, which was clear from page 178 of the Paper Book. The learned Authorized Representative for the assessee then referred to page 215, part-II, which related to Taloja site, wherein it was clarified that the land at Taloja belonged to HLL, who in turn, had entered into leave and license agreement with ICI India Ltd. and that leave and license agreement was novated to the assessee. He concluded by saying that pursuant to this agreement, it is clear that ownership of both the lands in question did not pass on to the assessee. 25. The learned Authorized Representative for the assessee referred to the terms of Toll Agreement, copy of which is placed at 285 onwards of the Paper Book. After taking us through the background mentioned in the said Toll Agreement, he pointed out that under the said agreement technical information was transferred to the ass....
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....ts for both Panki and Taloja units, under clause (iv), cost which associated for transfer was not booked. He again reiterated that option was for Panki assets and the leasehold rights in land were valued at Rs. 1 lakh. He further referred to the observations of CIT(A) at page 40 in para 6.4.8 and para 6.5.2 and pointed out that evidences were filed and reply was also filed that know-how had been transferred. He made reference to the Paper Book-2 at pages 178 and 184 in this regard. He also pointed out that for the transfer of technical know-how, various documents were available but the same were not produced for the reason of secrecy of business. He stressed that all the evidences were available with the assessee and the same were not produced. However, the assessee produced before us carton full of documents and pointed out that these were confidential reports of transfer of know-how. In this regard, application was filed by the assessee along with an affidavit. He stressed that in view of the evidences available, there was no justification in the order of CIT(A) in saying that no know-how was acquired. He also pointed out that certain documents were filed before the CIT(A). He ne....
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....s was acquired by the assessee for Rs. 174.36 crores. He further referred to the BTA and Paper Book for assessment year 2003-04 at page 148 and pointed out that Panki site covered all that land using catalysts manufacturing facilities which were only on 27 acres. He referred to page 431 of the Paper Book, wherein in a communication, Kanpur Development Authority has pointed out that total landholding of ICI India Ltd. was 270.9667 acres, out of which ICI India Ltd. had sub-leased 27.528 acres and had retained 241.7726 acres. The learned Authorized Representative for the assessee in this regard pointed out that the CIT(A) said that Rs. 174 crores was for 279.30 acres i.e. total landholding. However, if the same rate is applied to 27.52 acres at best the value of land would be Rs. 17 crores approximately. He fairly admitted, that at highest, value of land could be taken at Rs. 17 crores and the balance value to be reduced i.e. Panki assets at Rs. 17 crores. 29. Coming to the next aspect of goodwill decided by the CIT(A), the learned Authorized Representative for the assessee pointed out that the assessee had allocated value both to goodwill and know-how. However, the CIT(A) vide pa....
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....IT (2011) 332 ITR 531 (Kerala), he pointed out that claim of depreciation could be changed in later years. In this regard, he stressed that there was no evidence of know-how of Panki division having been acquired. The second issue raised by the assessee, was referred to by the learned Departmental Representative for the Revenue i.e. WDV cannot be disturbed and the third was enhancement of income by the CIT(A), which, according to the learned Authorized Representative for the assessee, was new source of income. 33. The next issue was whether WDV was sacrosanct. In this regard, he placed reliance on the ratio laid down by the Hon'ble High Court of Kerala in B. Raveendran Pillai Vs. CIT (supra) and he stressed that the decision of the Delhi Bench of Tribunal in Osram India (P) Ltd. Vs. DCIT (2012) 20 taxmann.com 271 (Delhi) was not applicable. He was of the view that there could be circumstances, where WDV can be changed and in the present case, he noted that there was allocation, which was different from actual cost and therefore, section 43(6) of the Act had to be read in tandem i.e. harmonious construction should be given to the provisions of said section. Referring to the said ....
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.... under which actual date of transfer was 02.12.2002 and the IP was transferred, which is also referred in the Toll Agreement dated 02.12.2002. 35. Coming to the next stand of the learned Departmental Representative for the Revenue that know-how was owned by ICI India Ltd. and could not be transferred. He pointed out that the CIT(A) in para 6.4.1 at page 31 has held that know-how was not ascertainable. Referring to the definition of slump sale in section 2(42C) of the Act, where the cost of assets were not known, then the steps to be taken. He also referred to the definition of excluded assets which does not include know-how. Referring to para 6.4.5 of CIT(A)'s order, the learned Authorized Representative for the assessee pointed out that business was taken over by the assessee and not the plant & machinery and plot of land at Panki; hence the know-how had to be taken, otherwise, how the business would go on. In para 6.4.7, the CIT(A) refers to the Toll Agreement and license to be given to ICI India Ltd. to manufacture on assessee's behalf. The assessee became the owner of know-how under the BTA and that is how it could give same to ICI India Ltd. under Toll Agreement. 36. The....
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....lier order denied depreciation on goodwill claimed at Rs. 1.49 crores and depreciation on non-compete fees at Rs. 81,45,129/- totaling Rs. 2.30 crores. The CIT(A) while deciding the appeal for instant assessment year observed that where the entire business was taken over by the assessee as going concern, with all assets and liabilities, there would remain no competition from the seller and hence, so-called payment of non-compete fees at Rs. 3.51 crores was nothing but part of composite price paid for acquisition of entire business of ICI India Ltd., which had to be clubbed with total slump sale price of Rs. 153.18 crores. The second observations of the CIT(A) was that there was no explicit payment for goodwill as per the BTA and/or the payment towards non-compete fees, hence the assessee was not eligible to claim depreciation on goodwill; since it was not specifically mentioned in the list of intangible assets under section 32(1)(ii) of the Act, which talked about know-how, patents, copyrights, trademarks, license, franchise, etc. Further goodwill was also not covered by the expression 'any other business or commercial rights' of similar nature. The CIT(A) thus, denied the deprecia....
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....market share i.e. of Johnson Matheys. Another linked observation of the CIT(A) was that as per Toll Conversion Agreement (TCA), the business was first purchased from ICI India Ltd. and then given back to ICI India Ltd. for the purpose of manufacturing of its products, was not acceptable. Referring to the terms of BTA, the CIT(A) held that there was no segregation of assets both tangible and intangible in the same. His main plank of decision was the value of assets i.e. lands at Panki and Taloja. After deliberations, he was of the view that the purchase price of Rs. 153.18 crores paid by the assessee included consideration paid for the rights in land and hence, after working out the market value of identifiable tangible assets, he was of the view that where the market value of said tangible assets worked out to Rs. 231.85 crores as against slump price of Rs. 153.18 crores, then no balance amount was left to be allocated to intangible assets. He was of the view that the assessee had not acquired any intangible assets in consolidated slump price of Rs. 153.18 crores. Accordingly, he did not accept the working of asset vis-à-vis value allocated to intangible assets including kno....
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....assets and intangible assets; c) Determination of value of land at Taloja and Panki for its value to be attributed from slump price; d) Allocation of value to trademarks, patents and know-how and goodwill, out of purchase consideration of Rs. 153.18 crores; e) Claim of depreciation on such trademarks, patents and know-how and goodwill; f) Basis for exercise of power of enhancement by the CIT(A); g) Disallowance of depreciation once the assets had entered into block of assets, in view of section 43(6) of the Act; h) Corporate issue of expenses pertaining to increase in share capital. 39. In order to adjudicate the issues raised in the present appeal, first reference is to be made to sequence of events relating to transaction of acquisition of Synetix division of ICI India Ltd. by Johnson Matheys Pvt. Ltd. The BTA between the two parties i.e. ICI India Ltd. and Johnson Matheys PLC is dated 02.10.2002 and placed at pages 127 to 288 of the Paper Book, Vol-II for assessment year 2003-04. Under the agreement, ICI India Ltd. had agreed to sell and transfer certain assets comprising of Indian business as going concern and the purchas....
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....c) the Business properties; (d) the Debtors; (e) the benefits of Business Contracts; (f) all right and title of ICI India in or to the Business IP; (g) the Business Goodwill; (h) the Business Stock; and (i) the Primary Books and Records and the Secondary Books and Records; but for the avoidance of doubt excluding the Excluded Assets. (underline provided by us for emphasis) 41. 'Panki activities' were the activities involved in the manufacture of products (as defined in TCA) pursuant to the TCA. 'Panki assets' meant the following assets of ICI India Ltd.:- (a) all plant, machinery, equipment, computer and communications hardware, loose tools, fixtures, fittings, furniture and vehicles located at the Panki Site; (b) the leasehold and licensed properties comprising the Panki Site, together with all buildings thereon; (c) the Retained Permits; (d) the Contracts in respect of the Panki Site relating to the supply of utilities, the supply of consumables (including stores and spare parts) and the maintenance of the items referred to in paragraph (a) above; (e) loans to employees; ....
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.... net asset adjustment. Various other terms and conditions were agreed upon between ICI India Ltd. and Johnson Matheys PLC for takeover of the business as going concern. Under clause 7, it was agreed that ICI India Ltd. shall from warranty date comply with and from that date until the transfer time, the non-fulfillment of conditions by the Long Stop Date or termination of this agreement pursuant to clause 6.5, whichever shall be the first to occur, comply with, the provisions of Schedule 1 i.e. Conduct of the Indian Business and the Panki activities until completion and the trading payment. The balance terms and conditions are not relevant for deciding the issue before us. However, clauses 18.5 to 18.7 i.e. relating to allocation of technical information and its transfer needs reference to adjudicate the issues, whether the assessee had received any technical information. The relevant paras read as under:- "18.5 Allocation of Technical Information (a) ICI India and the Purchaser shall : (i) Within one month following completion, ensure that their respective representatives (who shall each be suitably qualified, in the sense of having knowledge of the relev....
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....ning Excluded Technical Information and the Purchaser shall have no right to use or have access to the same. Records containing Technical Information which is not used in the Indian Business but which relates to catalysts and has been identified by the Business prior to the Warranty Date as being of interest to it, but does not constitute Excluded Technical Information, and which ICI India is therefore willing to make available to the Purchaser (any such Technical Information being "Excluded Technical Information") If the purchaser so request in writing, ICI India shall provide it with a complete and accurate copy of each record ( or all relevant parts of the record) containing Available Technical Information at the Purchaser's reasonable cost. The Purchaser's rights to use this will then be as set out in the IP Agreement in relation to the "Shared Unregistered IP"). (c) Where ICI India is obliged under this Clause 18.5 (Allocation of Technical Information) to provide the original or a copy of any record or part of any record to the Purchaser, it shall provide the same to the Purchaser, or to any member of the Purchaser's Group, as directed by the Purchaser, with....
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....e access under Clause 18.7 (a) ( ICI India's access to verify Technical Information) for the following purposes only; (i) to verify that no record which contains Excluded Technical Information is in the possession or control of the Purchaser's Group; (ii) to extract and retain any record to the extent that it contains Excluded Technical Information ; and (iii) to obtain copies of any record to the extent that it contains Shared Technical Information." 45. Schedule I to the agreement enlists conduct of Indian business and the Panki activity until completion and the trading payments, wherein ICI India Ltd. agreed with the purchaser that, from the warranty date until the transfer time, it has and will continue to carry on the Indian business and the Panki activities in the same manner that Indian business has been carried on prior to the warranty date. Various other terms were agreed upon between ICI India Ltd. and the purchaser i.e. Johnson Matheys PLC for various acts to be undertaken in relation to the Indian business and Panki activities or any part thereof. It was also agreed that risk in Indian business shall pass to the purchaser with effect from c....
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....ocated at the Gurgaon site. 47. The Toll Conversion Agreement between ICI India Ltd. and the assessee company was entered into on 02.12.2002 and the copy of the same is placed at pages 282 to 331 of the Paper Book. Under the said Toll agreement, the assessee has agreed with ICI India Ltd. to manufacture the products for it on the agreed terms and conditions. During the contract term and in consideration for the assessee complying with its obligations under the agreement including paying operating cost and capital expenditure cost, ICI India Ltd. undertook to manufacture products upto agreed capacity exclusively for JM India i.e. assessee. It was also agreed that the manufacture of products would be in accordance with relevant specifications. Further, ICI India Ltd. shall not use plant and equipment for any purpose other than manufacturing and supplying the products for and to JM India and further, it was also agreed that ICI India Ltd. shall not use technical information, assessees' branding or any other intellectual property licensed to it under the agreement for any purpose other than manufacturing the products for assessee. As per clause 3.2, it was agreed upon that ICI India....
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....ich the assessee grants to ICI India Ltd. the right to sell the site assets, subject to employees prior consent to transfer any or all of the employees to assessee, for the site price on giving the put option. The time to exercise the said options is also provided under Schedule 8. The perusal of the same, thus reflect that under site option and the put option, there is transfer of leasehold interest in site and all the plant and machinery. However, under plant option, option was with assessee to purchase all or part of the plant and machinery. 48. Reading the terms of BTA as agreed upon between the parties, ICI India Ltd. agreed to transfer, sell and / or to assign its Indian business as a going concern. As referred to in paras hereinabove, Indian business was defined and understood between the parties, was catalyst business carried on by ICI India Ltd. under the name and style Synetix. The same included business plant & machinery, business properties, employees, debtors, all the rights and liabilities of ICI India Ltd. in or to the business IP, the business goodwill and primary and secondary books and records. However, the term 'Indian business' did not talk about Panki activi....
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....l Agreement, it was decided that the said Panki site would be transferred at the value of Rs. 1 lakh, which we shall consider in the paras hereinafter; but the parties did agree to understanding to carry on the business in a particular manner. On analysis of the terms of BTA and Toll agreements, it transpires that the value of land at Panki was not part of slump price since the same was not transferred on the date of signing of BTA and TCA. ICI India Ltd. owned 279.30 acres of land, out of which catalyst business was being carried on part of it i.e. 27.53 acres, which admittedly, was to be transferred to the assessee. The said land was under lease with Kanpur Development Authority, for which necessary permission was required before the land could be transferred. Hence, the conclusion of CIT(A) in this regard that the land at Panki was transferred and its value as per valuation done by KDA works out to Rs. 174.36 crores is without any basis. In the absence of any land at Panki being transferred under the BTA, there is no merit in findings of CIT(A) in this regard. 49. Now, coming to the second piece of land on which catalyst business of ICI India Ltd. was being carried on i.e. at....
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....usiness to the assessee in 2002 and hence, the Novation between HLL, ICI India Ltd. and the assessee. Another document which needs reference is the Memorandum of Understanding dated 02.04.2008, copy of which is placed at pages 332 onwards of the Paper Book between HLL and the assessee, wherein the said land was agreed to be sold by HLL to the assessee for Rs. 6.93 crores. The Deed of Assignment is placed at page 399 of the Paper Book, the said Deed of Assignment which was entered after approval from MIDC on 19.01.2009. In view thereof, there is no merit in the stand of CIT(A) that the land at Taloja was transferred by ICI India Ltd. to the assessee under BTA and hence, the value of slump price is first to be attributed to the cost of said land. 52. Before parting, we may also refer to Deed of Novation dated 15.11.2002, which is executed between ICI India Ltd. and Johnson Matheys PLC and the assessee before us, under which it is very clearly provided that by the Business Transfer Agreement dated 02.10.2002, ICI India Ltd. had agreed with the purchaser i.e. Johnson Matheys PLC to sell and transfer its catalyst business as going concern on the terms and conditions contained therein....
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....d the balance was attributed to goodwill. The CIT(A) had disallowed the claim of assessee on the ground that the most important asset acquired by the assessee was the land at Panki and Taloja sites and since the Valuer had not attributed any cost to the same, working of the Valuer was not correct. We have already in the paras hereinabove held that no cost was to be attributed to the Panki site and Taloja site out of slump price, since both the sites have not been acquired by the assessee as owner on the date of BTA. For the sake of repetition, it may be pointed out that the site at Taloja is leasehold right held by ICI India Ltd. and though ICI India Ltd. was the owner of Panki site, but necessary permission was required from KDA before it could be so transferred and in the absence of the same, nothing was transferred to assessee. Another aspect of non-transfer of site and plant & machinery is the Toll Agreement, which was entered into between the parties. ICI India Ltd. in the first instance, transferred all the rights to carry on the business including Business IP, trademarks, rights and intellectuals as is clear from the terms of said Toll Agreement entered into between ICI Indi....
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....hinery, business properties, employees and debtors, benefits of business contracts, all right & title of ICI India Ltd. in or to the business IP and business goodwill. In other words, it was not only the business but the right to carry on business along with intellectual rights being business IP, goodwill of business were also acquired by the assessee under BTA. Once the same has been so acquired, then the slump price is to be spread over, not only, over the value of tangible assets i.e. plant & machinery and other assets, but balance over the value of trademarks, know-how and patents and if any balance is so left, then over the goodwill. 54. The assessee during the course of hearing has furnished additional evidence of documents in connection with acquisition of technical know-how by the assessee which are placed at pages 1 to 21 of the Paper Book. The assessee has also furnished Novation of Agency Agreement, Customer Contracts and Distribution of Customer list which are placed at pages 22 to 42 of the Paper Book. We have already considered the claim of assessee in this regard and in view of additional evidence which is in continuation with terms of BTA entered into, we find me....
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.... The relevant findings are as under:- "9. We are in agreement with the finding recorded by the Tribunal. Admittedly, the amount of Rs. 14.75 crores was the consideration for the entire unit as a going concern. The assessee has placed no material to give bifurcation of costs towards various assets. Under such circumstances, the same had to be estimated. The Tribunal has adopted the best available evidence in the form of report of the expert M/s. S. R. Baltiboi and Consultants (P) Ltd. It is a well established principle of law that while exercising the jurisdiction under section 260A of the Act, this court shall not substitute its own estimate for that of the Tribunal unless it is shown that the estimate of the Tribunal is based on no material or is totally perverse and irrational. Such is not the case in the present appeal." 58. Similar proposition has been laid down by the Pune Bench of Tribunal in Drilbits International (P) Ltd. Vs. DCIT (2011) 142 TTJ 0086 (Pune-Trib). 59. The Hon'ble High Court of Delhi in DE Nora India Ltd. Vs. CIT (2015) 370 ITR 391 (Del) on similar facts as in the case of assessee, where the assets and liabilities and obligations were taken fro....
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....In case money is borrowed by a newly started company which is in the process of constructing and erecting its plant, the interest incurred before the commencement of production on such borrowed money can be capitalised and added to the cost of the fixed assets which have been created as a result of such expen diture. The above rule of accountancy should, in our view, be adopted for determining the actual cost of the assets in the absence of any statutory definition or other indication to the contrary." 16. The aforesaid decision does not help or assist the assessee in the present case, for we are not concerned with what should be capitalised but we have to answer what was the actual cost of the fixed assets on which depreciation should be claimed and allowed, i.e., the actual cost paid by the assessee for the depreciable assets acquired from Wimco Ltd. For computing the value of the said assets, the appellant-assessee and Wimco Ltd. had both relied upon the surveyor's report dated January 16, 1990, and March 6, 1990. The said surveyor had valued all buildings, boundary wall and other plant and equipment. The aforesaid valuation report is detailed and elaborates and is ....
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.... 17. At this stage, it is also relevant to refer to Accounting Standard 10 as issued by the Institute of Chartered Accountants of India. The relevant extract of which reads as under:- "16.1 Goodwill, in general, is recorded in the books only when some consideration in money or money's worth has been paid for it. Whenever a business id acquired for a price (payable either in cash or in shares or otherwise) which is in excess of the value of the net assets of the business taken over, the excess id termed as 'goodwill'. Goodwill arises from business connections, trade name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise." 18. It is also relevant to note that Smifs Securities Ltd. (supra) was a case where assets of company - YSN shares and Securities (P.) Ltd. were transferred to Smifs Securities Ltd. under a scheme of amalgamation. And, the excess consideration paid by the Assessee therein over the value of net assets of YSN Shares and Securities (P.) Ltd. acquired by the Assessee, was accounted as goodwill. 19. In view of the above, we are inclined to accept the contention advanced on behalf of the Asse....
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....essee had allocated sum of Rs. 125.68 crores to the value of know-how, patents and trademarks, and goodwill. The said exercise was carried out in a systematic manner by the Valuer and in the absence of findings of any fallacy in the said distribution, there is no merit in rejecting the values adopted by the assessee. So, sum of Rs. 153.18 crores in the first instance is to be allocated to cost of tangible assets, further to the value of trademarks, patents and know-how and the balance to the goodwill. The assessee had undertaken the allocation in assessment year 2003-04, which has been accepted in the hands of assessee. Further, it may be pointed out herein itself that the assessee has been allowed depreciation on the value of know-how, patents and trademarks by the Assessing Officer, which has not been disturbed in the preceding year. However, the depreciation claimed on goodwill was not allowed to the assessee, which was allowed by the Tribunal in turn, following the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Smifs Securities Ltd. (supra). 64. The learned Departmental Representative for the Revenue placed heavy reliance on the ratio laid down by the Delhi Benc....
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....tmental Representative for the Revenue filed Paper Book Vol-3, which is again additional evidence. However, the learned Departmental Representative for the Revenue after going through the said documents at serial No.1 to 3 pointed out that the same are to be ignored for deciding the issue and hence, the same are dismissed. 68. Another additional evidence by way of Paper Book Vol-4 filed, in which the Revenue had filed the relevant portions of notes in respect of disinvestment of assets of Synetix in the annual report of ICI India Ltd. However, the learned Departmental Representative for the Revenue only referred to pages 35 and 47. However, the learned Departmental Representative for the Revenue has failed to submit the reasons favouring for its admission and in the absence of the same, we find no merit in the plea of learned Departmental Representative for the Revenue. Further, the learned Authorized Representative for the assessee has also objected to its admission. However, we are rejecting the same. In any case, the treatment of receipt in the books of account of seller would not decide the issue vis-à-vis the treatment of said assets in the hands of assessee. 69. ....
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....ancial year, then the assessee is entitled to claim the depreciation on the said WDV or not, was the next issue which was elaborately argued before us. 71. Both the learned Authorized Representatives referred to different parts of section 43(6) of the Act. The learned Authorized Representative for the assessee referred to clause (c) of section 43(6) of the Act, which talks of 'block of assets'. However, the learned Departmental Representative for the Revenue placed reliance on clause (b) of section 43(6) of the Act. The learned Departmental Representative for the Revenue was of the view that in case depreciation has not been allowed correctly in the preceding assessment years, then the same can be looked into by the Assessing Officer in succeeding year. He thus, emphasized that when an error had been made by Assessing Officer while working the value of assets under clause (b), then the same can be looked into afresh while deciding the case of allowability of depreciation in succeeding year. We find no merit in the stand of Revenue since after insertion by the Taxation Law (Amendment and Miscellaneous Provisions) Act, 1986 w.e.f. 01.04.1988, the concept of 'block of assets' had b....
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....ng written down value of the block of assets nor can he examine the correctness or otherwise of the opening written down value brought forward from the earlier year. The order under section 143(3) for assessment year 2003-04 continues to operate and no proceedings under the Act were initiated to disturb the same. 10. In these circumstances and without any material being placed on record to substantiate the shift in stand for the subject assessment year that the Tribunal emphasizing rule of consistency allowed Assessee's appeal. We do not think that such a view which has been taken in the given facts and circumstances and peculiar to the Assessee's case gives rise to any substantial question of law. Reliance placed on the Delhi High Court judgment therefore, cannot carry the case of the revenue in this matter any further. What comes within the purview of Section 32(1)(ii) of the Income Tax Act, 1961 and whether the department was right when it allowed the depreciation on the basis or foundation for the earlier assessment years need not be gone into in this Appeal. Question as posed and termed as substantial question of law can be determined and decided in an appropriate cas....